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GUJARAT URJA VIKAS NIGAM LIMITED V. ESSAR POWER LIMITED: A CRITIQUE

Author: Sagarika Swapnil, Advocate

Co-author: Raj Krishna, LL.M. from NLIU Bhopal


ABSTRACT

Gujarat Urja Vikas Nigam Limited and Essar Power Limited signed a Power Purchase Agreement between themselves in the year 1996. Essar Power Limited breached the agreement due to which Gujarat Urja Vikas Nigam Limitedfiled a case before the Electricity Commissioner. The Commissioner decided in favor of the Gujarat Urja Vikas Nigam Limited whereas on appeal the tribunal decided this case in favor of the Essar Power Limited. Eventually the matter went up to the Supreme Court. Interestingly the Supreme Court while deciding the case made an observation pertaining to the working of the tribunals in our country and also about the pendency of cases before itself. In light of the above facts, the authorsin this case analysis have analysed the verdict of the Supreme Court and has also given some suggestions to improve the working of tribunals in India.

Keywords- Power Purchase Agreement; Tribunal; Pendency.


BACKGROUND OF THE CASE

Gujarat Urja Vikas Nigam Limited (hereinafter referred as GUVNL) is a deemed licenseeand Essar Power limited (hereinafter referred as EPL) is a generation company as per the Electricity Act, 2003. The two signed a Power Purchase Agreement in the year 1996, for twenty years.The Agreement stated that EPL was supposed to allocate 300 MW out of the total 515 MW of electricity to the GUVNL and the remaining 215 MW was to be allocated to Essar Steel Limited (hereinafter referred as ESL). In case the quantum of generation was less than 515 MW, the allocation was to be in the proportion of 300:215. The same was also agreed upon by the Essar Power Limited vide its letter dated 17th February 2000.[1]


However, the GUVNL alleged that the EPL did not adhere to the agreement and allocated more electricity to ESL which resulted in losses to the GUVNL and gains to EPL which, according to the GUVNL, tentatively worked out to Rs. 476.22 crores (towards principal amount). It was further submitted by the GUVNLthat the Power Purchase Agreement stated that the GUVNLwas supposed to pay the annual fixed charges, the variable charges, incentive etc. in relation to the allocated capacity of 300 MW out of total 515 MW. Similarly, the ESL to whom the balance capacity of 215 MW was allocated was to bear the proportionate annual fixed cost, thus, the EPL was required to make electricity available to the GUVNLin the proportion of 300:215 as per Clause 3 of the Agreement.[2]


EPL failed to declare the availability in the same proportion so that the dispatch instruction could be issued as per the Agreement. The EPLallocated less electricity to the GUVNLand also failed to give complete details of the allocation made to the GUVNLand ESL. As a result, the GUVNLsuffered losses for which they were claiming compensation.


However, the EPLalleged that the Power-Purchase Agreement doesn’t impute any obligation on them to allocate electricity in the same proportionas claimed by the GUVNL.The EPLfurther contended that Article 4.1 of the PPA with the ESL stated that fuel is to be supplied by the ESL which created an obligation to generate electrical output up to the capacity allocated to the ESL. For supply to the Appellant, fuel is required to be arranged by the Respondent. Furthermore the EPLalleged that the GUVNLhad not paid cost for its allocated capacity. [3]Lastly, it was argued that the letter of the EPLcould not be read as the obligation of the EPLfor proportionate generation of the output or declaration of available capacity in absence of compliance of obligations under the PPA by the Appellant. In one of a letter it was made clear that if letter of credit was not opened by the Appellant, EPLwill not be obliged to supply power.[4]


Subsequently, Gujarat Urja Vikas Nigam Limited filed a petition before the Commissioner claiming compensation from Essar Power Limited because it wrongfully allocated electricity to its sister company. The Commissioner in this case held that “Gujarat Urja Vikas Nigam Limited was entitled to claim compensation for the energy diverted to Essar Steel from the capacity allotted to Gujarat Urja Vikas Nigam Limited under the Power Purchase Agreement and that Essar Power Limited at all time was under an obligation under the PPA to declare availability for the entire plant and allocate the supply on the basis of 300:215 or 58:42.[5] However the Tribunal upheld the claim of Essar Power Limited. The Tribunal held that “Essar Power Limited was not under any obligation under the PPA to declare availability for the entire plant and allocate the supply on the basis of 300:215 or 58:42.”[6]Subsequently, the GUVNLfiled an appeal before the Supreme Court under Section 125 of the Electricity Act, 2003.[7]


ISSUES BEFORE THE COURT

1. Interpretation of Power-Purchase Agreement

The Court firstly observed that the Power Purchase Agreement states the proportion of allocation.[8]According to the agreement the EPLwas supposed to fuel and operate the generating station in order to meet the requirement of electric output that can be generated corresponding to the allocated capacity. For this the GUVNLwere to pay annual fixed cost as laid down in Clause 7.1.1 of Schedule VII of the Agreement. The entire capacity has been allocated in two parts in a particular proportion.[9]As a result under Schedule VI the EPLwas under an obligation to declare weekly Schedule of the capacity available and the dispatch instructions were to be issued on the basis of the said declaration.[10]


2. Effects of Letters of the EPLand interpretation of Schedule VI to determine the obligation of the Parties

The Court observed that the letters of the EPL(Dated 17th February, 2000) clearly depicts that the EPLcompany were under an obligation to allocate power in the ration of 58:42. As a result the Apex Court ruled that “if we interpret Schedule VI then we will find that the EPLcompany (EPL) is required to declare weekly capacity available and on that basis dispatch instructions were required to be issued.” Therefore the view taken by the Tribunal is contrary to the agreement and therefore should be set aside.[11]


3. Relief to the Appellant

On the part of relief the Supreme Court observed that the Commissioner will decide the loss suffered and will thus award the compensation.[12]. The learned judge then in the epilogue wrote about the burden which the Supreme Court is facing because under many statutes the High Courts have been by-passed and the appeal of the appellate tribunal lies directly to the Supreme Court. The number of matters have increased to such a level that the court is unable to perform its original role of a Constitutional Court. As a result the Court directedthe Law Commission to work on the possible solutions to reduce this burden.[13]


COMMENT AND CONCLUSION

The authors believe that the judgment of the Apex Court is legally tenable. The Tribunal committed errors both in law and in fact which needed rectification. However in this judgment the learned judge has observed that the interpretation of the Power Purchase Agreement is a substantial question of law. In the case of Sir Chunnilal V. Mehta v The Central Spinning and Manufacturing Co. Ltd[14] the Court has observed that “substantial question of law is a matter of great moment. It must be a question of law which is of general public importance or is not free from difficulty and/or call for a discussion of alternative views.”[15]But in this case the court relaxed the rule of substantial question of law to correct the error committed by the Tribunal. Such relaxation of the rule will increase the burden of the court. It is therefore necessary that the appeals against the judgments of the Appellate tribunals should lie before the High Courts and not the Supreme Courts.


In addition, the Law Commission of India released a report in October 2017 titled "Assessment of Statutory Frameworks of Tribunals in India" in response to this judgement. But this research has brought up important issues regarding how Indian tribunals operate. Even though the Supreme Court confirmed the validity of tribunals, the fact that the notion of separation of powers has been determined by the tribunals cannot be denied. It is because the judiciary is accountable for resolving conflicts. Today, however, a sizable percentage of cases are being decided by tribunals. It is important to remember that the executive, not the judiciary, controls the tribunal.Whether it be the method of appointment, compensation, or service conditions. Instead of the legislature, everything is governed by the executive.[16]


Most of the time, the Supreme Court is the proper destination for an appeal from these tribunals. High Courts no longer have legal authority. The Supreme Court is inundated with appeals as a result. The volume of cases has reached a point where the court cannot fulfil its original function as a Constitutional Court. The Supreme Court has evolved into more of an appellate court. [17]


Thirdly, rather than professionals, retired High Court and Supreme Court judges are typically appointed to these panels. Most retired judges lack the knowledge required in that area. As a result, the goal of establishing tribunals is unsuccessful. India's justice system therefore requires a total overhaul.


First and foremost, the judiciary, not the executive, should be in charge of how the tribunals operate. The judges should have final authority on all matters, including appointment, compensation, and service terms. It's because these tribunals are performing judicial duties rather than executive duties. Second, the High Courts ought to have oversight over the tribunals that are under their purview, and an appeal ought to be made there rather than to the Supreme Court. The last and most significant argument is that, rather than retired judges or bureaucrats, those with professional experience in that sector should be selected to these tribunals. If the same is done, only then would the establishment of tribunals achieve its purpose; otherwise, there would be no justice in the establishment of tribunals.

[1]Gujarat Urja Vikas Nigam Limited v. Essar Power Limited, (2016) 9 SCC 103 [4]. [2]Gujarat Urja Vikas Nigam Limited (n1) [4] [3]Ibid [19] [4]Ibid [19] [5]Ibid [4] [6]Ibid [4] [7]Ibid [1] [8]Ibid [22]. [9]Ibid [22]. [10]Ibid [22]. [11]Ibid [24 & 25]. [12]Ibid [26 & 27]. [13]Ibid [41]. [14]Sir Chunnilal V. Mehta v. The Central Spinning and Manufacturing Co.LtdAIR 1962 SC 1314 [15]Ibid. [16]Somasekhar Sundaresan, ‘The Problem with Tribunalisation,’(Somasekhars, 2 November, 2017) <https://somasekhars.wordpress.com/2017/11/02/the-problem-with-tribunalisation/> accessed20 December 2020. [17] Ibid.

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