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Appeal No.105 of 2011
Appellate Tribunal for Electricity
(Appellate Jurisdiction)
APPEAL No.105 of 2011
Dated:21st January, 2013
Present : HON'BLE MR. JUSTICE M KARPAGA VINAYAGAM,
CHAIRPERSON
HON'BLE MR. RAKESH NATH, TECHNICAL MEMBER
In the Matter of:
M/s. JSW Energy Limited
Jindal Mansion,
5-1, Dr. G. Deshmukh Marg,
Mumbai-400 026
...Appellant
Versus
1. Maharashtra State Electricity Distribution Co.
Ltd.,
Prakashgad, 5th Floor,
Bandra(East)
Mumbai-400 051.
2. Maharashtra Electricity Regulatory Commission
World Trade Centre No.1, 13th Floor
Cuffe Parade, Colaba,
Mumbai-400 001
.....Respondent(s)
Counsel for the Appellant(s) : Mr. M G Ramachandran
Mr. Anand K Ganesan
Ms. Sneha Venkataramani
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Appeal No.105 of 2011
Counsel for the Respondent(s):Ms. Deepa Chawan
Mr. Abhishek Mitra for R.1
Mr. Buddy A Ranganadhan for R.2
Mr. Varun Pathak
Mr. Amarjeet Singh
J U D G M E NT
PER HON'BLE MR. JUSTICE M. KARPAGA VINAYAGAM,
CHAIRPERSON
1. JSW Energy Limited is the Appellant herein.
2. The Appellant filed a petition before the Maharashtra
Commission claiming the cost of installation of Flue
Gas De-sulphurisation (FGD) system to be included
in the Project Cost as per Power Purchase
Agreement dated 23.2.2008. However, the said
claim was rejected by the State Commission through
the order dated 25.5.2011.
3. Aggrieved by this, the Appellant has filed this
Appeal.
4. The short facts are as follows:-
i) The Appellant is a generating company.
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Appeal No.105 of 2011
ii) The Maharashtra State Electricity
Distribution Company Limited (MSEDCL) is
the Distribution Licensee, the 1st Respondent.
iii) The Maharashtra State Regulatory
Commission is the 2nd Respondent.
iv) The Appellant envisaged to set up a
generating Station at Ratnagiri after identifying
the land required and obtaining the requisite
permissions and approvals.
v) The Appellant applied for Environmental
clearance for the power project from the
Ministry of Environment and Forest,
Government of India.
vi) Accordingly, the Ministry, Government of
India granted the Environmental clearance to
the Appellant on 17.5.2007. In the said
approval, the Government of India had
imposed various conditions subject to which
the Environmental clearance was granted.
vii) The clearance stipulated that adequate
space shall be provided by the Appellant for
installation of the Flue Gas De-
sulphurisation(FGD) system for removal of
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Appeal No.105 of 2011
sulphur di-oxide, if required at later stage.
Accordingly, the adequate space was provided
for the installation of the FGD system.
viii) In the year 2007, the Distribution
Licensee (R-1) initiated competitive bidding
process for procurement of electricity in
accordance with the guidelines issued by the
Government of India under section 63 of the
Electricity Act, 2003. From 21.2.2008 onwards,
the Appellant and others submitted the bids for
the sale of electricity to the Distribution
Licensee on the terms and conditions of the
bidding documents. After observing the
required procedures, the Appellant was
selected as a successful bidder. Thereafter, on
the basis of selection of the Appellant as the
successful bidder to supply 300 MW of
electricity to the Distribution Licensee(R-1) both
the parties have entered into the Power
Purchase Agreement on 23.2.2008. The bid
documents and the Power Purchase
Agreement provided that in case of change in
law after 7 days prior to the bid deadline, i.e.
14.2.2008, any financial impact on account of
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Appeal No.105 of 2011
such change in law needed to be
compensated.
ix) The Ministry of Environment and Forest
sent a letter, at the final stage of
commissioning the Project on 16.4.2010
imposing a condition that FGD system shall be
installed before the commissioning of the
Project. The Appellant sent a reply to the
Ministry on 22.4.2010 for cancellation of such
imposition of condition mainly on the ground
that the requirement of the FGD was not
established yet and that the commissioning of
the Project would get delayed further on
account of condition now imposed for installing
FGD prior to commissioning of the Project. On
the basis of the representation made by the
Appellant, the Ministry by the letter dated
28.6.2010 required the Appellant to install the
FGD within a period of 23 months and
conveyed its Environmental clearance for the
Project subject to the compliance of the
safeguards and conditions mentioned in the
said letter.
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Appeal No.105 of 2011
x) In pursuance of the said letter sent by the
Government, the Appellant incurred
expenditure for installation of FGD.
Thereupon, the Appellant sent a letter to the
Distribution Licensee(R-1) on 27.7.2010
intimating that the mandate had been imposed
by the Government of India dated 16.4.2010
and as such there was a change in law as per
clause 13 of Power Purchase Agreement and
accordingly, the Company incurred expenditure
for installation of FGD which claimed to be
included in the cost. In reply to the said letter,
the Distribution Licensee(R1) sent a letter
dated 11.8.2010 rejecting the claim of the
Appellant contending that it was the obligation
of the Appellant to maintain all required
consents for the Power Project and as such
there was no change in law in terms of clause
13 of Power Purchase Agreement.
xi) On receipt of the refusal of this claim, the
Appellant issued notice to the Distribution
Licensee on 20.8.2010 for resolution of the
dispute arose between the parties. The
Appellant further stated in the letter that
notwithstanding the disputes that have arisen
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Appeal No.105 of 2011
between the parties, the Appellant will continue
to perform its obligations by supplying power
under the Power Purchase Agreement without
prejudice to its claim.
xii) Thereupon, the meeting was held
between the parties. It was decided in the
meeting that the parties shall proceed for
resolution of the dispute by way of adjudication
by the State Commission.
xiii) In pursuance of the said decision, the
Appellant filed a petition in petition No.99 of
2010 on 14.12.2010 before the State
Commission for adjudication of dispute that has
arisen between parties regarding the
application of Clause 13 of the Power Purchase
Agreement on account of imposition of the
condition of installation of FGD by the
Appellant.
xiv) The State Commission after hearing the
parties by the impugned order dated 25.5.2011
dismissed the petition filed by the Appellant
and rejected its claim on the ground that even
under the initial Environmental clearance dated
17.5.2007, it was mandated for the installation
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Appeal No.105 of 2011
of the FGD and that the cost thereof ought to
have been included in the total cost.
xv) Having aggrieved over this order, the
Appellant has filed this Appeal.
5. Assailing the order impugned, the learned Counsel
for the Appellant has made the following
submissions:-
i) The State Commission held in the impugned
order that there was no change in law in terms
of clause 13 of Power Purchase Agreement
entered into between the Appellant and
Distribution Licensee (R-1) since the condition
of installation of FGD imposed by the
Government of India by the communication
dated 16.4.2010 had already been imposed in
the Environmental clearance dated 17.5.2007.
This finding is wrong because there was no
statutory direction in the Environmental
clearance dated 17.5.2007 mandating the
installation of the FGD and this mandate was
issued only on 16.4.2010 and as such it
squarely falls within the definition of "Change in
Law" as per the PPA.
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Appeal No.105 of 2011
ii) The stipulation regarding FGD in the
Environmental clearance dated 17.5.2007 was
that the installation be done, only if required, in
future. Thus, the installation of FGD as on the
cut off date was not a mandate or certainty.
This means that the installation of FGD may
not be necessary at all at this stage.
Therefore, there was no reason for the
Appellant to consider at that stage that the cost
of FGD should be included in the Project Cost.
iii) The State Commission held that there
was an obligation on the part of the Appellant
for maintaining a separate fund for
implementation of the Environmental
protection measures in the form of FGD to
include FGD cost in the Project Cost. This
finding is wrong. At the time when the bid was
submitted and when the Power Purchase
Agreement was signed, the cost of FGD did
not form part of the Environmental protection
measures as it was not directed to be incurred
by the Ministry of Environment and Forest, as
per the Environmental clearance.
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Appeal No.105 of 2011
iv) The initial Environmental clearance dated
17.5.2007 did not mandate the installation of
FGD by the Appellant at its Power Station.
The only condition as applicable then was the
sufficient space needed to be provided by the
Appellant, and the installation of FGD if
required at the time in future. Therefore, the
cost to be considered by the Appellant at such
a point of time was only for the space to be
kept aside. There was no mandate for the
installation of the FGD at that time. Under
those circumstances, the State Commission
can not hold that the Appellant was under an
obligation to install the FGD and its cost was to
be included in the Project cost at that stage
itself.
v) The Appellant at the time of submission
of the bids had disclosed all the relevant
events with regard to its activities. Further, the
Appellant has acted in terms of PPA. In any
event, there was no order in the pending
litigation affecting in any manner, the
implementation of the Project and as such it
did not in any manner affect the claim of the
Appellant. As such, the non disclosure of the
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Appeal No.105 of 2011
pending litigation is irrelevant to the issue in
question.
6. On these grounds, the Appellant seeks to set aside
the impugned order dated 25.5.2011 and to hold
that the imposing the mandate of installation of FGD
amounts to 'change in law' under clause 13 of the
PPA and consequently the Distribution Licensee is
liable to pay compensation to the Appellant for the
adverse financial impact for installation of FGD on
account of "Change in Law.
7. In reply to the above submissions, the learned
Counsel for the Respondent-1, the Distribution
Licensee has made the following submissions:-
i) The Appellant is totally wrong in
contending that the requirement in the
Environmental clearance dated 17.5.2007 was
required to be carried out only in future and
therefore, the mandate that the FGD must be
installed issued by the Government would
amount to change in law. Careful perusal of
the Environmental Clearance would show that
the argument advanced by the Appellant has
no basis. As a matter of fact, the
Environmental Clearance puts the conditions
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Appeal No.105 of 2011
that a detailed study with reference to the
impact of the Project was to be undertaken
and additional safeguards should be provided
by identifying the separate space for the
installation of FGD and not only that, it
required that separate funds should be
allocated for such measures which were to be
included in the Project cost. Therefore,
nothing prevented the Appellant from
implementing these measures and claiming
the same in the Project cost even at the first
instance.
ii) In terms of the conditions in the
Environmental Clearance, the Appellant was
under bounden duty to include the FGD cost in
the Project cost which the Appellant had failed
to do. The Environmental clearance would
specifically mandate that the space provision
shall be made for installation of FGD, if
required, at a later stage and it further
mandated that separate allocation of funds for
the Environmental protection measures must
be made and that the same must be included
in the Project cost. Admittedly, the funds were
not allocated at that time even though it was
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Appeal No.105 of 2011
mandated that the funds were to be allocated
at that stage itself, which shall be included in
the Project cost. Therefore, it can not be
contended that there was a change in law.
iii) RFQ and RFP and draft PPA were
circulated to the bidders in October 2007 itself.
As per the bid documents, the Appellant had to
disclose at the bid stage itself, the litigation
pending against it but actually there was
litigation pending at that stage as against the
Appellant both before the Appellate Forum and
the High Court. However, this was not
disclosed. As a result of the non-disclosure of
the pending litigation by the Appellant, the
Distribution Licensee was unable to consider
the possible effects of the pending litigation
and in good faith it considered the bid of the
Appellant on the merits of the particulars
disclosed by the Appellant. The factum of the
non-disclosure by the Appellant of the
pendency of the legal litigation related to the
Environmental clearance is fatal to the claim of
the Appellant.
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Appeal No.105 of 2011
iv) In the event the Appellant had disclosed
to the Distribution Licensee, the pending
litigation in respect of Environmental
clearance, the Distribution Licensee would not
have considered the bid of the Appellant or in
the alternative the Distribution Licensee would
have included adequate conditions in the PPA
itself regarding the possible outcome of the
pending litigation. In that event, the
Distribution licensee could have analysed the
impact of the adverse order on the tariff
proposed by the Appellant and would have
made provisions accordingly. As a result of
the non- disclosure, the Distribution Licensee
was prevented to consider the actual outcome
of the pending litigation. On the other hand,
the Appellant misled the Distribution Licensee
to consider the bid of the Appellant on the
merits of the limited particulars disclosed by
the Appellant in the submissions for the bid.
Therefore, the Appellant is estopped from
contending that there was a change in law as
provided in the PPA and also from claiming the
benefits of the said provision.
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Appeal No.105 of 2011
8. In the light of the rival contentions, the following
questions would arise for consideration:-
a) Whether there was any change in law
in accordance with the clause 13 read with
other clauses of the Power Purchase
Agreement in its entirety in the good faith
and circumstances of the case?
b) Whether in the Environmental
clearance dated 17.5.2007 or at any time
prior to the bid deadline namely 14.2.2008,
was there any mandate requiring the
installation of FGD by the Appellant and
allocation of funds as part of the Project
cost for the installation of FGD?
c) Whether non-disclosure of pending
litigation by the Appellant at the time of
submission of bid documents would be
fatal to the claim of the Appellant on the
strength of subsequent notification issued
by the Ministry dated 16.4.2010?
9. Before dealing with these questions, it would be
better to refer to the relevant chronological events
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Appeal No.105 of 2011
which would disclose the actual background of the
case, which are given below:-
i) The Ministry of Power, Government of
India notified tariff based competitive bidding
guidelines for Distribution Licensees to ensure
procurement of power in transparent and
competitive manner. These guidelines were
issued on 19.01.2005. Thereupon, on
14.9.2006, the Central Government issued
notification relating to requirement of prior
Environmental clearance. On the basis of this
notification, the Ministry of Environment and
Forest issued a circular in terms of the
notification dated 14.9.2006 inviting
applications from the applicants who are
interested in putting up thermal power plants to
grant prior Environmental clearance.
ii) The Appellant, seeking for the prior
Environmental clearance, sent a proposal to
the Ministry on 06.11.2006. On receipt of
several applications, the expert appraisal
committee was constituted by the Ministry of
Environment and Forest.
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Appeal No.105 of 2011
iii) Ultimately on 17.5.2007, the Ministry of
Environment and Forest issued Environmental
clearance to the Appellant for the Power
Project, subject to the implementation of the
various terms and conditions.
iv) There were several conditions provided
in the Environmental Clearance dated
17.5.2007. We shall quote the relevant
conditions contained in the Environmental
clearance which are given below:-
(iii) Space provision shall be made for
installation of FGD of requisite
efficiency of removal of SO2, if
required at later stage.
(xx) Separate funds should be
allocated for implementation of
Environmental protection measures
along with item wise break up. These
cost should be included as part of the
project cost. The funds earmarked for
the environment protection measures
should not be diverted for other
purposes and year wise expenditure
should be reported to the Ministry.
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Appeal No.105 of 2011
v) Through these conditions, the Appellant
had been communicated that the Appellant
may be required to install FGD of required
capacity at a later stage and called upon the
Appellant to provide the space for installation
of FGD of requisite efficiency as well as to
allocate funds for implementation of those
Environmental protection measures and the
cost should be included as part of the Project
cost. It also provided that the Appellant should
not divert the said funds for any other purpose.
vi) As against the Environmental clearance
issued in favour of the Appellant, one other
party claiming himself aggrieved, filed an
Appeal before the National Environment
Appellate authority challenging the said
Environmental Clearance on 27.7.2007. The
same was pending.
vii) At that stage, in October, 2007, the
Distribution Licensee (MSEDCL) initiated
competitive bidding process for procurement of
power. With reference to this, 14.2.2008 was
decided as the cut-off-date for application for
change in law being 7 days prior to the bidding
Page 18 of 51
Appeal No.105 of 2011
deadline. As on the cut-off-date, the prior
Environmental clearance received by the
Appellant stipulated that the cost relating to the
implementation of the Environmental
protection measures should be included as
part of the Project cost. On 21.02.2008, the
Appellant had submitted the bid for supply of
300 MW of power, in terms of the competitive
bidding process initiated by the Distribution
Licensee. In March, 2008 bidding evaluation
was completed. At the end of technical
evaluation; 10 bidders including the Appellant
were selected. All technical bids were opened
on 20.8.2008. At that stage on 12.9.2008, the
Appeal filed against the Environmental
clearance was dismissed by the Appellate
Authority.
viii) As against this order passed on the
Appeal, a writ petition was filed by the
aggrieved party before the High Court, New
Delhi on 18.9.2009. The High Court while
disposing the writ petition directed the Expert
Appraisal Committee to re-examine the issue
and to file the report and that the issue of
provision of FGD be decided. On 11.01.2010
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Appeal No.105 of 2011
Expert Appraisal Committee conducted a
meeting. There also, it was decided regarding
the requirement of installing FGD at a later
stage.
ix) Since the Appellant became the
successful bidder, Power Purchase Agreement
was entered into between the Distribution
Licensee, Respondent-1 and the Appellant for
supply of 300 MW to the Distribution Licensee
on 23.02.2010. Subsequently, the Ministry of
Environment and Forest sent a letter to the
Appellant on 16.4.2010 directing the Appellant
that the FGD system shall be installed before
commissioning the Project.
x) Though the Appellant sent a request
through a letter dated 22.4.2010 praying for
withdrawal of the condition of establishing FGD
before commissioning the plant, the Ministry
refused to withdraw the said direction but
directed the Appellant to install FGD within a
period of 23 months.
xi) Only thereafter, the Appellant gave all
these details to the Distribution Licensee
through its letter dated 11.8.2010 about the
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Appeal No.105 of 2011
pendency of the litigation, the committee's
report and the letter sent to the Ministry of
Environment and Forest and claimed the
financial benefits due to "Change in Law".
However, on 11.8.2010, the Distribution
Licensee rejected the claim of the Appellant.
xii) On this basis, the Appellant raised the
dispute for resolution. The meeting was held
between the parties to explore the possibility of
amicable settlement as contemplated in the
Power Purchase Agreement but the same did
not get materialised.
xiii) Therefore, the Appellant filed Petition
No.99 of 2010 before the State Commission on
14.12.2010. The Appellant has prayed the
State Commission in the petition to adjudicate
upon the dispute between the Appellant and
Distribution Licensee or in the alternative refer
the dispute to adjudication through arbitration.
xiv) The State Commission after hearing the
parties, by the order dated 25.5.2011 rejected
the petition filed by the Appellant on the
ground that the initial Environmental clearance
dated 17.5.2007 itself mandated the
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Appeal No.105 of 2011
installation of the FGD and cost incurred for
the said installation ought to have been
included in the total cost by the Appellant and
as such the same is not a "Change in law".
xv) Aggrieved by this order, this Appeal has
been filed by the Appellant mainly on the
ground that there was no statutory direction in
the Environmental clearance mandating the
installation of FGD prior to the direction of the
Ministry of Environment and Forest i.e.
16.4.2010 and as such, it squarely falls within
the definition of 'Change in Law under the
PPA entered into between the Appellant and
the Distribution Licensee.
10. Bearing these facts in our mind, let us now refer to
the discussion and the finding referred to in the
impugned order by the State Commission while
rejecting the claim of the Appellant:
"Having heard the parties and after
considering the materials placed on
record, the Commission has following
observations:
(i) The Petitioner states that as per
Article 13.1.1 of the PPA dated 23rd
February 2010, it is entitled to claim
financial benefits due to change in
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Appeal No.105 of 2011
law of that of the condition to install
FGD imposed under a letter dated
16th April 2010 of the MoEF issued to
the Petitioner imposing the following
as " "additional conditions" under
paragraph 2(i) in the said letter which
is extracted as follows:
"Flue Gas Desulphurisation System
(FGD) shall be installed before
commissioning of the project and
action in this regard shall be
submitted within three months to the
Ministry".
ii) On account of the "additional
conditions", the Petitioner has
sought to claim Rs.150 Crore as an
increase in the project cost(one
fourth of total projected cost of 600
Crore of FGD plant) subsequent to
signing of the PPA and which is
stated to have a significant cost
impact on the contracted capacity of
300 MW to be supplied to the
Respondent.
iii) it is necessary therefore to
examine Article 13.1.1 of the PPA
dated 23rd February 2010 as follows:-
"Change in Law" means the
occurrence of any of the
following events after the date,
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Appeal No.105 of 2011
which is seven (7) days, prior, to
the Bid Deadline:
i) the enactment, bringing
into effect, adoption,
promulgation, amendment,
modification or repeal, of any
Law or (ii) a change in the
interpretation of any Law by a
Competent Court of law,
tribunal of Indian Governmental
Instrumentally provided such
Court of law, tribunal on 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.
(iv) As per the Environmental
Clearance dated 17.5.2007, the
direction was given to keep the space
for installation of the FGD if required
and also for allocation of separate
funds for that purpose. The letter
dated 16.4.2010 issued by the GOI
MoEF binds the Petitioner to install
the FGD before commissioning of the
project. The Petitioner contended
that this subsequent imposition of
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Appeal No.105 of 2011
the condition is a change in law. As
per the above quoted provision of
change in law, the contention of the
petitioner is nowhere sustained in
the definition. Furthermore, as per
the Clause 5.4. of the PPA the Seller
i.e. the Petitioner shall be
responsible for obtaining all consents
required for developing, financing,
constructing, operating and
maintenance of the project, the
Petitioner shall also be responsible
for obtaining/maintaining/renewing
the Initial Consents and for fulfilling
all conditions specified therein.
(v) As per Clause 3.1.2.i of the PPA,
the Petitioner shall have received the
initial Consents as mentioned in
Schedule I either unconditionally or
subject to conditions which do not
materially prejudice its rights or the
performance of its obligations under
the Agreement. Schedule I include
the Clearance of State Pollution
Control Board/MoEF. All these
clauses of the PPA cast the burden
on the Petitioner and further the
condition (xx) in the Environmental
Clearance protection measures and
that this cost should be included as
part of the project cost and not
diverted for any other purpose. Even
though the Petitioner stated that he
has not included the cost of the FGD
in the bid and now claiming for
enhancing the capital cost and tariff,
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Appeal No.105 of 2011
this claim is untenable. This claim of
the Petitioner shows that, the
Petitioner has disregarded the
directions of the MoEF.
(vi) The Petitioner has made positive
assertion/warranties in consonance
with Condition 2.5. of Schedule 9
that no litigation was pending or
threatened against the Petitioner. By
such positive assertion the Petitioner
suppressed the pendency of litigation
regarding Environmental Clearance.
While the Commission records the
above contention of Respondents and
notes that the Petitioner has not
disputed the same, this matter can
not be taken up in the present
proceedings of the Petitioner.
In view of the above, the present
Petition is hereby dismissed."
11. The crux of the findings given in the impugned order
are as follows:-
i) According to the generating company, it
is entitled to claim financial benefits due to
"Change in Law" with regard to the condition in
FGD imposed under letter dated 16.4.2010 by
the Government directing the Company to
impose the additional condition to the effect
that the company shall install FGD before
commissioning the Project. On account of the
Page 26 of 51
Appeal No.105 of 2011
additional conditions, the generating company
sought claim of Rs.150 crores incurred
subsequent to signing the PPA as the said
additional conditions would amount to change
in law under clause 13.1.1 of the PPA.
ii) According to the Generating Company,
as per the Environmental clearance dated
17.5.2007, direction was given to keep the
space for installation of FGD, if required, in
future, but the letter subsequently issued by
the Government on 16.4.2010 only binds the
generating company to install the FGD before
the commissioning the Project and therefore,
the subsequent imposition of condition is a
change in law. This contention cannot be
accepted as it would not satisfy the definition
of the term 'Change in Law' as contained in
clause 13 of the PPA.
iii) As per the clause 5.4. of the PPA, the
generating company namely Seller shall be
responsible for obtaining all the Consents
required for developing, financing,
constructing, operating and maintenance of the
Project. This clause further provides that the
Page 27 of 51
Appeal No.105 of 2011
generating company shall be responsible for
obtaining and renewing the initial consents and
other financial conditions specified there.
iv) As per the clause 3.1.2 of the PPA, the
generating company shall receive all the initial
consents either unconditionally or subject to
some conditions which do not prejudice its
right or the performance of its obligations. All
these clauses of the PPA cast burden on the
generating company for obtaining all the
consents unconditionally or subject to some
conditions. Further, the condition (xx) in the
Environmental clearance dated 17.5.2007
mandates the generating company not only to
keep the space but also to allocate a separate
fund for implementation of the Environmental
protection measures and that this cost should
included as part of the Project cost which
should not be diverted for any other purpose.
v) Even though, the generating company
has provided space for FGD, it has not
allocated the separate funds and not included
in the cost of the FGD in the bid. Even then,
the generating company is now claiming for
Page 28 of 51
Appeal No.105 of 2011
enhancing the capital cost of the FGD which
has been spent subsequent to the PPA. Thus,
it is clear that the generating company has
disregarded the direction of the Ministry who
issued Environmental clearance. Therefore,
this claim is untenable.
vi) The Distribution Licensee has pointed
out that at the time of the submission of the bid
documents some litigation was pending with
reference to the Environmental clearance but
the same was not disclosed to the Distribution
Licensee while the bid documents have been
submitted and this shows that the generating
company has suppressed the pendency of the
litigation regarding the Environmental
clearance in the bid documents. Even though
the Distribution Licensee raised this contention
on the point of non disclosure and the
Commission also recorded their contentions on
the impugned order, the Generating Company
has not disputed this. However, this issue
cannot be decided in the present proceedings
of the generating company and it can be
decided later in the appropriate proceedings.
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Appeal No.105 of 2011
12. On these reasonings, the claim of the Appellant is
rejected.
13. The Appellant, in this Appeal has raised two issues
(1) Change in Law and (2) The effect of non-
disclosure of pending litigation.
14. With reference to the 2nd issue relating to non-
disclosure of pending litigation, we do not propose to
deal with the said issue as the State Commission
has held that the said issue can be decided later in
the appropriate proceedings. In the absence of any
findings with regard to the said issue by the State
Commission, we do not want to go into the merits of
that issue though the said issue has been
elaborately argued by both the parties before this
Tribunal. That apart, the non-disclosure of the
pending litigation will not be a relevant issue for
considering the main issue which has been raised
as the First Issue with regard to 'change in law'.
Therefore, we deem it appropriate to go into the
First issue regarding the change in law in detail.
15. The case of the Appellant in a nutshell is that the
requirement as referred to in the Environmental
Clearance dated 17.5.2007 was required to be
carried out only in future and not at that stage, and
Page 30 of 51
Appeal No.105 of 2011
that therefore, the direction for enforcement of the
said condition by the Government of India by the
letter dated 16.4.2010 amounts to change in law as
per the PPA executed between the Appellant and
the Distribution Licensee and consequently, the
Appellant is entitled to claim the financial benefits of
the said change in law. Thus, the Appellant relies
upon two documents namely Environmental
Clearance dated 17.5.2007 and the letter of Ministry
of Forest dated 16.4.2010 in the light of the Clause
providing for change in law in the PPA.
16. The relevant extract of the Environmental
clearance granted to the Appellant by the letter
dated 17.5.2007 are as under:
"3. The proposal has been considered in
accordance with para 12 of the EIA
Notification dated 14.09.2006 read with para
2.2.1 (i) (a) of the Circular No.J-
110013/41/2006-IA II (i) dated 13.10.2006 and
Environmental clearance is hereby accorded
under the provisions there of subject to
implementation of the following terms and
conditions:
............
(ii) The detailed study regarding the impact of the project, if any, on Alphanso mango and marine fisheries as recommended in the report of Dr. B.S Konkan Krishi Page 31 of 51 Appeal No.105 of 2011 Vidyapith shall be undertaken. Based on the same, additional safeguard measures as may be required will be taken by the proponent with prior approval of the Ministry of Environment and Forests. A copy of the report will be submitted to the Ministry. The cost towards undertaking the study and implementation of safeguard measures, if any, will be borne by the project.
(iii) Space provision shall be made for installation of FGD of requisite efficiency of removal of SO2, if required at later stage. .......
(xx) Separate funds should be allocated for implementation of Environmental protection measures along with item wise break-up. These cost should be included as part of the project cost. The funds earmarked for the Environmental protection measures should not be diverted for other purposes and year wise expenditure should be reported to the Ministry.
...............
7. In case of any deviation or alteration in the project proposed from those submitted to this Ministry for clearance, a fresh reference should be made to the Ministry to assess the adequacy of the condition (s) imposed and to add additional Environmental protection measures required, if any.
8. The above stipulations would be enforced among others, under the Water (Prevention and Page 32 of 51 Appeal No.105 of 2011 Control of Pollution) Act, 1974, the Air (Prevention and Control of Pollution) Act, 1981, the Environment (Protection) Act, 1986 and Rules there under, Hazardous Wasters (Management and Handling) Rules, 1989 and its amendments, the Public Liability Insurance Act, 1991 and its amendments."
17. The highlighted portion would indicate that the Appellant was mandated not only to undertake for providing additional safeguards but also it required for allotting separate space as well as for allocating certain funds for such measures which are to be included in the project cost.
18. It is true that in the Environmental clearance dated 17.5.2007 in Para-(iii), the Appellant was directed to install the FGD at a later stage if required. However, it was to be noted that there is not only reference relating to identification of the space in the Environmental Clearance but it specifically mandated under Para (xx) that the Appellant should allocate separate funds for implementation of the Environmental protection measures and cost of the same should be included as part of the project cost. It further provided the funds earmarked for the same should not be diverted for any other purpose.
Page 33 of 51Appeal No.105 of 2011
19. According to the Appellant, when the Environmental clearance was issued in favour of the Appellant, the FGD was not foreseen at that stage. As indicated above, the Environmental clearance dated 17.5.2007 of course, provided for installation of FGD at a later stage but it clearly mandated that the cost of the Environmental protection measures must be allocated and the said funds allocated, have to be included in the project cost and the same should not be diverted for any other purpose.
20. According to the Appellant, under Clause 13.1.1 of the PPA it is entitled to claim financial benefits due to change in law as the additional condition was imposed only through the letter dated 16.4.2010 sent by the Ministry of Environment and Forest by directing the Appellant that the FGD was to be installed before commissioning the project and this additional condition was not provided in the Environmental Clearance dated 17.5.2007 and that on account of the additional condition, the Appellant had incurred a sum of Rs.150 Crores as an increase in the project cost.
21. Therefore, in view of the above contention urged by the Appellant, it would be appropriate to refer to Page 34 of 51 Appeal No.105 of 2011 Clause 13.1.1 of the PPA dated 23.2.2011 which is as follows:
"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:
(i) the enactment, bringing into effect, adoption, promulgation, amendment, modification or repeal, of any Law or (ii) a change in the interpretation of any Law by a Competent Court of Law, tribunal of Indian Governmental instrumentality provided such Court of Law, tribunal on 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."
22. In the light of the argument advanced by the Learned Counsel for the Appellant, on the basis of the definition of the term "Change in Law", it would be proper to compare both the Environmental clearance dated 17.5.2007 and the letter dated 16.4.2010 issued by the Government of India. The same are quoted as under:Page 35 of 51
Appeal No.105 of 2011
(a) Environment Clearance Letter dated 17.5.2007
3. The proposal has been considered in accordance with para 12 of the EIA Notification dated 145th September, 2006 read with para 2.2.1 (i) (a) of the Circular No.J-11013/41/2006- IA.II(I) dated 13.10.2006 and Environmental clearance is hereby accorded under the provisions there of subject to implementation of the following terms and conditions:
(i)........
(ii)........
(iii) Space provision shall be made for installation of FGD of requisite efficiency of removal of SO2, if required at later stage.
(iv) to (xix).............
(xx) Separate funds should be allocated for implementation of Environmental protection measures along with item wise break up. These cost should be included as part of the project cost. The funds earmarked for the environment protection measures should not be diverted for other purposes and year-wise expenditure should be reported to the Ministry.
(b) Environmental Clearance Letter dated 16.4.2010
2. (i) Flue Gas De-Sulphurisation (FGD) system shall be installed before commissioning the Page 36 of 51 Appeal No.105 of 2011 project and action in this regard shall be submitted within three months to the Ministry.
23. Under the Environmental Clearance dated 17.5.2007, the direction was issued to the Appellant to keep the space for installation of FGD if required at later stage and also to allocate separate funds for that purpose which should not be diverted for any other purpose.
24. On going through the letter dated 16.4.2010 issued by the Ministry, it is evident that the Appellant is bound to install the FGD before commissioning of the project. According to the Appellant, the subsequent imposition of the condition is a change in law. To interpretate this clause in order to understand the real meaning of the term "Change in Law", we have to refer to the other clauses.
25. As per clause 5.4 of the PPA, the Appellant shall be responsible for obtaining consents required for developing, financing, constructing, operating and maintenance of the project. Not only that, the Appellant shall be responsible for obtaining, maintaining and renewing the initial consents and also for fulfilling all conditions specified therein. Clause 5.4 of the PPA is quoted below:
Page 37 of 51Appeal No.105 of 2011 "5.4. Consents The Seller shall be responsible for obtaining all Consents required for developing, financing, constructing, operating and maintenance of the Project and maintaining/renewing all such Consents in order to carry out its obligations under this Agreement in general and this Article 5 in particular and shall supply to the Procurer promptly with copies of each application that it submits, and cop/ies of each consent/approval/license which it obtains. For the avoidance of doubt, it is clarified that the Seller shall also be responsible for obtaining/ maintaining/renewing the initial Consents and for fulfilling all conditions specified therein.
26. That apart, Clause 3.1.2 (i) of the PPA, the Appellant shall have received the initial consents either unconditionally or subject to conditions which do not materially prejudice its right or performance of its obligations under the agreement. Thus, all these clauses of the PPA cast the burden on the Appellant. Clause 3.1.2 (i) of the PPA is quoted below:
"Clause 3.1.2 (i) "the Seller shall have received the Initial Consents as mentioned in Schedule I, either unconditionally or subject to conditions which do not materially prejudice its rights or the performance of its obligations under this Agreement".Page 38 of 51
Appeal No.105 of 2011
27. That apart, the clause xx of the Environmental clearance dated 17.5.2007 has mandated the Appellant a separate fund for implementation of the Environmental protection measures. It also provided a condition that this cost, namely separate funds should be included as part of the project cost and not diverted for any other purpose. Clause xx of the Environmental Clearance is quoted below:
"(xx) Separate funds should be allocated for implementation of Environmental protection measures along with item wise break up. These cost should be included as part of the project cost. The funds earmarked for the environment protection measures should not be diverted for other purposes and year-wise expenditure should be reported to the Ministry".
28. Under these circumstances, the question would arise like this: "whether the Appellant can now claim for enhancement of the capital cost in the absence of the allocation of separate funds for installing FGD which is to be included as part of the project cost ?".
29. On a careful perusal and on a combined reading of relevant clauses of the PPA, the Environmental Clearance dated 17.5.2007 and the letter issued by the Central Government on 16.4.2010, it is clear that Page 39 of 51 Appeal No.105 of 2011 there is no change in law as contemplated by the PPA.
30. As mentioned above, Environmental clearance dated 17.5.2007 provided for installation of the FGD at a later stage and further mandated that separate funds must be allocated for installation of the said FGD as well as for making such Environmental protection measures which are to be included in the project cost. Admittedly, this has not been complied with by the Appellant after getting the Environmental clearance. The letter dated 16.4.2010 issued by the Central Government merely confirms the requirement of installation of the FGD intimated earlier. It merely informs the Appellant the stage of installation. Therefore, there was no 'Change in Law' which has been occasioned as claimed by the Appellant.
31. The contention of the Appellant regarding the status of it Environmental clearance and the connected claim of change in law has also to be appreciated in view of the observations made by Delhi High Court in the order dates 16.9.2009 regarding the Environmental clearance as under:
Page 40 of 51Appeal No.105 of 2011 "20. After noticing the report of the KKVD and considering the recommendation made, the project was approved subject to conditions as under:-
"(i) No activities in CRZ area will be taken up without requisite clearance under the provisions of the CRZ Notification, 1991.
(ii) The detailed study regarding the impact on Alphonso mango and marine fisheries as recommended in the report of Dr. B.S. Konkan Krishi Vidyapith shall be undertaken. Based on the same, additional safeguard measures as may be required will be taken by the proponent. A copy of the report will be submitted to the Ministry. The cost towards undertaking the study and implementation of safeguard measures, if any, will be borne by the project.
(iii) Space provision for FGD will be kept, if required at a later date.
(iv) Cooling water blow down will be discharge from the cold water side and not from the hot water."
(emphasis supplied)
21. There is contradiction between the minutes of the meeting of the Expert Appraisal Committee held on 9-10th January, 2007 and 12-14th March, 2007. On 9th-10th January, 2007, the application was Page 41 of 51 Appeal No.105 of 2011 decided to be kept in abeyance to await the report of KKVD which as per the said minutes would take six months. What was before the Committee on 12-14th March, 2007 was a preliminary report prepared within 2-3 months? The minutes dated 12-
14th March, 2007 record that as per the report submitted by KKVD it would take about four years of detailed study to effectively evaluate the impact of the proposed plant. KKVD on the basis of the existing material, in form of assessment studies conducted by EQMS India Pvt. Ltd., and predictions on the level of pollutants made by MPCB and Central Pollution Control Board, Delhi, had stated that it was likely that there would not be any adverse impact on horticulture, mango plantations or marine life, subject to the condition that the respondent no.3 strictly maintained adherence to their commitments. The so called report submitted by KKVD is extremely guarded and cautious. It was not based on their data and studies. It was not conclusive and does not give approval but qualified statements were made. Further KKVD in clear terms had stated that any final assessment would require a detailed study for a period of four years to evaluate the impact on mango plantations and the marine life/fisheries. This was noted by the expert committee themselves in their minutes dated 12-14th March, 2007 quoted above. Further the issue of provision of FGD has been left to be decided at a later Page 42 of 51 Appeal No.105 of 2011 stage. Position before NEAA remained the same"
32. The observation of Delhi High Court particularly at paragraph-21 quoted above, clarifies the status of requirement of the installation of the FGD in the project. The High Court has clearly stated that what the expert appraisal committee considered in its earlier meeting dated 14.3.2007 was only a preliminary report which was extremely guarded.
33. In fact, the High Court has stated clearly in its order "Further the issue of provision of FGD has been left to be decided at a later stage. Position before NEAA remained the same".
34. This observation of the Delhi High Court read along with the mandate that the funds were to be separately allocated for the same which was to be included in the project cost clearly mandates that the situation as projected by the Appellant does not fall within "Change of Law". It is in this light that the Environmental clearance granted on 17.5.2007 has to be seen.
35. As mentioned above, the condition No (iii) would mandate that the space provision shall be made for installation of FGD at a later stage. The Para (xx) Page 43 of 51 Appeal No.105 of 2011 would also provide that separate funds would be allocated for implementation of these conditions and the said funds should be included as a part of the project cost. Therefore, the specific direction given to the Appellant even in the Environmental clearance would reveal that the Appellant was duty bound to include the fund allocation in the project cost. Admittedly, this was not done.
36. The Appellant now seeks to rely only upon the condition that the space provision for FGD is made if required in future. But the Appellant, in fact has not taken note of the remaining conditions as to the fund allocation and inclusion of the same in the project cost.
37. According to the Appellant, FGD fund is not required to be included in the project cost. There is no merit in this substance.
38. Let us again refer to the conditions in the Environmental clearance dated 17.5.2007:
"(ii) the detailed study regarding the impact of the project, if any, on Alphanso mango and marine fisheries as recommended in the report of Dr. B.S. Konkan Krishi Vidyapith shall be undertaken. Based on the same, additional safeguard measures as may be Page 44 of 51 Appeal No.105 of 2011 required will be taken by the proponent with prior approval of the Ministry of Environment and Forests. A copy of the report will be submitted to the Ministry. The cost towards undertaking the study and implementation of safeguard measures if any, will be borne by the project.
(iii) Space provision shall be made for installation of FGD of requisite efficiency of removal of SO2, if required at later stage.
...................
(xx) Separate funds should be allocated for implementation of Environmental protection measures along with item wise break up. These cost should be included as part of the project cost. The funds earmarked for the environment protection measures should not be diverted for other purposes and year wise expenditure should be reported to the Ministry".
39. So, the reading of the conditions in entirety referred to in the Environmental clearance would make it clear that there was a mandate with regard to the requirement of earmarking of funds for FGD as well. The study to be carried out was specific to the case of the Appellant's plant as it is recorded that the study is to be carried out in terms and the recommendations in the report of KKVD. This has been referred to in the order of the Delhi High Court Page 45 of 51 Appeal No.105 of 2011 while reference was made to the minutes of the 42nd Meeting of the Expert Appraise Committee.
40. The contention of the Appellant to the effect that Environmental clearance did not require the installation of FGD is to be accepted, then the said Environmental clearance would have categorically stated that FGD is not required and in that event, the directions for such specific funds allocation would not have been issued.
41. On the other hand, as mentioned above, there is a specific requirement regarding space as well as separate fund allocation.
42. This can be viewed from yet another angle. Admittedly, the Appellant was declared as a successful bidder after competitive bidding process. As indicated above, the Environmental clearance dated 17.5.2007 contemplated installation of FGD at a later stage with inclusion of cost for all Environmental measures in the project cost. If the claim of the Appellant is to be accepted, then it would defeat the sanctity of the competitive bidding process. Not only that, the other bidders who had participated in the bidding would also be pre- judicially affected. In fact, the Appellant after Page 46 of 51 Appeal No.105 of 2011 ignoring the relevant conditions referred to in the Environmental clearance relating to the inclusion of project cost has allegedly submitted the bids without FGD cost, getting into the zone of consideration in the bidding process having been bidder L-3 and thereafter revising the project cost. Due to this, the entire bidding process and the interest of other bidders get vitiated.
43. Even the mandate contained in Clause 13 of the PPA relating to the change in law clearly stipulates that the change in law can be taken into consideration only in respect of occurrence of events after the cut-off date which is 7 days prior to the dead line. In the present case, the cut-off date is 14.2.2008. In a Regulatory regime, the sanctity of the PPA and the representation and warranties made by the parties in entering into such agreements have to be given due consideration. The claim of the Appellant cannot be permitted to vitiate the bidding process and to pre-judicially affect other bidders.
44. The case of the Appellant is that it was not required to install FGD system till the execution of the PPA Page 47 of 51 Appeal No.105 of 2011 and also it was not required to allot separate funds. This is misconceived.
45. As indicated above, Clause 4.1.1 (a) of the PPA, read with Schedule-I, clearly casts the responsibility on the Appellant to obtain all requisite, consents and approvals. Clause 13 relating to change in law of the PPA has to be read along with Clause 2.5 of the Schedule 9 of the PPA which relates to the representation and warranties. Therefore, Clause 13 cannot be read in isolation. The change in law contemplated U/S 13 of the PPA is seven (7) days prior to the bid dead line in this case i.e. 14.2.2008.
46. It is a settled law that the terms of a contract have to be read as a whole and cannot be read in isolation. There is no change as sought to be claimed by the Appellant. The mere intimation of the stage for installation of FGD is not a change in law or interpretation of law. We find that prior Environmental clearance granted was conditional and that the entire bid of the Appellant was on the basis of the representation of the Appellant is indicative of the fact that the FGD was required to be installed by the Appellant and the Appellant was well aware of the same.
Page 48 of 51Appeal No.105 of 2011
47. The Appellant's argument is that very purpose of Clause 13 of the PPA was to ensure that the lowest tariff is produced in the competitive bidding process based on the legal requirements as on the bid deadline and any future changes in law would be adjusted in the tariff. This argument has no basis.
48. According to the Distribution Licensee (R-1), fixing of the price is vital aspect in the bidding process but the requirement to disclose the material facts is more vital so as to enable the tenderer to disclose the most sustainable price offer as well.
49. There is one more document which is in support of the Respondent. The minutes of the 62nd Meeting dated 12.1.2010 will make it evident that the Environmental clearance was conditional and the requirement to install FGD was not done away with. As a matter of fact, this condition was made unambiguous from the subsequent letter from the Ministry of Environment and Forest dated 16.4.2010. In this letter, the Ministry has directed that subject to implementation of the condition of the Environmental clearance, the FGD shall be installed. This condition was expressly stipulated in the letter dated 16.4.2010, relating to the conditions mentioned in Page 49 of 51 Appeal No.105 of 2011 both the clearance granted on 17.5.2007 as well as in the minutes of the 62nd Meeting of the Expert Appraisal Committee. Hence there is no merit in the claim of the Appellant.
50. Summary of Our Findings
(i) The Environmental Clearance dated 17.5.2007 provided for installation of the FGD at a later stage. It further mandated that separate funds must be allotted for installation of the said FGD, which are to be included in the project cost. Admittedly, these conditions have not been complied with by the Appellant after getting the Environmental Clearance.
(ii) On a careful perusal of the relevant clause of the PPA, the Environmental Clearance dated 17.5.2007 and the letter issued by the Central Government on 16.4.2010, it is clear that there is no "Change in Law" as contemplated by the PPA. In fact, the letter dated 16.4.2010 issued by the Central Government merely confirms the requirement of installation of the FGD intimated through the letter dated 17.5.2007. It merely informs the Appellant the state of the installation of the FGD. Therefore, there is no "Change in Page 50 of 51 Appeal No.105 of 2011 law" as claimed by the Appellant. The reasonings given in the impugned order for rejecting the claim of the Appellant are perfectly valid in law.
51. In view of the above findings, we find that there is no merit in the Appeal.
52. Consequently, the Appeal is dismissed as devoid of merits. However, there is no order as to costs.
(Rakesh Nath) (Justice M. Karpaga Vinayagam)
Technical Member Chairperson
Dated:21st January, 2013
√REPORTABLE/NON-REPORTABALE
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