Supreme Court of India
Haryana Power Purchase Centre vs Magnum Power Gen.Ltd. on 21 January, 2020Author: Rohinton Fali Nariman

Bench: Rohinton Fali Nariman, V. Ramasubramanian




CIVIL APPEAL NOS. 4407-4408 OF 2011





CIVIL APPEAL NOS. 7446-7447 OF 2012

R.F. Nariman, J.

Civil Appeal Nos. 7446-7447 OF 2012:

1) The present appeals arise from an Appellate Tribunal

for Electricity order dated 23.03.2012, which, in turn,

upheld the HERC order dated 23.03.2010. The brief facts

necessary for decision of these appeals are as follows:-

(i) A Power Purchase Agreement (PPA) dated 12.08.1998 was

entered into between the appellant and the respondent for

sale by the appellant of energy produced by it after setting

up of a power plant. The salient terms of this PPA are as


“5.1. Terms of Agreement: This Agreement
shall become effective upon execution and
Signature Not Verified

Digitally signed by R
delivery by the Parties here to and unless
Date: 2020.01.25
12:23:14 IST
earlier terminated pursuant to Article 5 shall
have a term from the date here of until fifteen
(15) years from the Synchronization Date of
last Unit. (180) days prior to the end of the
full (15) Year term described above the HSEB

shall have the right for an extension of this
Agreement for an additional period as required
on the same terms except the Tariff (as defined
in Schedule 4) which shall be re-negotiated.
Such extension shall begin upon the end of the
full fifteen (15) Year term.

In the event the term is not extended, the
company shall have the option to sell power to
third party.

In the alternative HSEB shall have the first
right to refusal to buy the Project at the book

5.2. Company Default

The following events unless occurring as a
result of a breach by HSEB of its obligations
under this agreement or an event of force
majeure, shall constitute an event of default
by the Company:-

(a) The Company is adjudicated bankrupt or
dissolved or a receiver is appointed for its
assets or proceedings for the company’s
liquidation (except for the purpose of
amalgamation or restructuring on terms not
detrimental to HSEB) are continuing more than
120 days after they were commenced.

(b) Any license or consent required by the
company to perform its obligation under this
Agreement is revoked or is not renewed because
of the company’s default.

(c) The Company fails to commence construction
of the Power station to a material extent
within (6) months after the date of financial
closing or abandons the Power Station due to
the company’s default or repudiates this
Agreement, contrary to the terms of this

(d) The Company declares neither generating
unit available, or no generating unit is
capable of generating any electricity due to
company’s default for a continuous period of
six (6) months.

(e) The Company commits a serious breach of
this Agreement and which results in the Company
being unable to carry out its obligations and

where the breach is capable of being remedied
it has not been remedied within 60 days after
HSEB notified the company in writing of the
nature of the breach and required it to be


The following events unless occurring as a
result of a breach by the company of its
obligations under the agreement or an event of
Force Majeure, shall constitute an event of
default by the HSEB.

(a) HSEB is adjudicated bankrupt or
dissolved or a receiver is appointed of the
whole or any part of its assets or proceedings
for its liquidation (other than for the purpose
of amalgamation or restructuring on terms not
detrimental to the company) which are
continuing more than 120 days after they were

(b) If an amount due equal to one months
billing at 75% PLF, payable by HSEB to the
company shall remain unpaid more than 60 days
after the payment became due.

(c) Any license or consent required by the
HSEB or any of its entitled successors pursuant
to clause 18.10 to purchase electricity in bulk
from the company or to transmit that
electricity for the purpose of supplying
electricity to consumers or any licensee in the
State of Haryana is revoked or expires for any
reason whatsoever.

(d) HSEB commits a serious breach of this
Agreement which results in the company being
unable to carry out its obligation and where
the breach is capable of being remedied it has
not been remedied within 60 days after the
company notified HSEB in writing of the nature
of the breach and required it to be remedied.

(e) HSEB fails to provide, maintain,
restore or replenish the letter of Credit and
Escrow Account as per provisions of this

ii) The appellant covenanted and agreed with the HSEB to

design, construct and complete the Project, arrange fuel for

the Plant and make available to the HSEB not later than the

Required Synchronization Date, the Contracted energy and the

Contracted Operating Characteristics of each Unit. Clause

8.2 which deals with “operation” is important and is set out

herein below:

“8.2 Operation

(a) The HSEB shall issue daily Dispatch
Instructions directing the Company’s generating
plant operator to comply with clause 5.2(a) of
Schedule 6 but ensuring annual PLF of 75%
failing which the Company will be compensated
for the Constant Component of the tariff for
the short fall. The adjustment for PLF will be
on semi annual basis. However, if in
subsequent six months declared availability is
not sufficient to achieve 75% PLF then the
overall annual PLF shall be considered on the
basis of declared availability over the year.

(b) Procedures for despatch of the Project
shall be in accordance with despatch procedures
set out in Schedule 6.

(c) The HSEB shall have the right to request
that the Project be shutdown subject to
ensuring annual PLF of 75%.

(d) The company shall not be required to
operate the Project other than in accordance
with Prudent Utility Practices or except as
provided in Section 8.4, the Technical Limits
as such limits may be temporarily modified.

(e) The company shall make reasonable efforts
to employ qualified personnel preferably from
within the State of Haryana in the operation
and maintenance of the Project and to institute
appropriate training programs for such
personnel; provided, however, that the Company
shall have sole discretion as to the personnel
employed for the operation and maintenance of
the project within the bounds permitted by

(iii) Schedule-3 of the PPA laid down a Formula for

Contracted Electrical Output as well as Annual Plant Load

Factor as follows:-

“3.1 Formula for Contracted Electrical Output

Contracted Electrical output per year in
Million KWH (MU)

=(8760×0.75×1000) (1-Aux Cons%) x Tested Capacity in MW

3.2 Annual Plant Load Factor (PLF) shall be
calculated as under:

PLF% = Actual net electrical output in interconnection
point, in MU by the project x 100
Net electrical output plant is capable of
delivery at the interconnection point as per
tested capacity of the project.

Note: Auxiliary consumption maximum allowed
3.5% including transformation losses.”

(iv) Schedule-4 which spoke of “determination of tariff”

laid down the tariff as the applicable rate upto 75% Plant

Load Factor (PLF) which shall be Rs. 2.40 for every KWH

respondent delivered out of Rs.2.40; Rs. 1.29 shall be the

constant component during the term of the PPA and Rs. 1.11

is adjustable as per a certain formula with which we are not

directly concerned.

(v) Under Schedule-6, which speaks of Despatch Procedure,

the appellant is first to make an Availability Declaration

as follows:

“Availability Declaration:

Magnum Power Generation Ltd. shall, by not
later than 10.00 hrs each day, submit HSEB an
Availability Declaration, prepared as a best
estimate on good faith, in respect of an
Availability Period during the following
Scheduled Day.”

The respondent is then to give the appellant a Generation

Schedule under Clause 5 as follows:-

“5. Generation Schedule

5.1. HSEB shall issue to the Company a schedule
of its energy requirement with respect to the
generation by the Power Plant during each
Schedule day by 17:00 hrs on the proceeding
Day, provided that the Company had submitted an
Availability Declaration containing all the
necessary information by 10:00 hrs on such
proceeding Schedule Day. However, if HSEB is
unable to furnish its energy requirements by
the stipulated time of 17.00 hrs. on preceding
day, the energy generated as per the
availability declaration shall be deemed to be
the energy requirement.

5.2 Each Generation Schedule will contain the
following information in respect of each
relevant Schedule day:

(a) The level of Active Power which the Power
Plant is required to produce by way of base
load generation. The level of Active Power
shall be within (-) 10% (minus ten per cent) of
the Declared Availability of that Schedule Day;
subject to minimum of 75% of the contracted

(b) HSEB shall ensure that the Power Station is
despatched as per the Generation Schedule given
to the Company for the Schedule Day.

(c) In exceptional cases during the monsoon
season, HSEB shall have the right to despatch
below 75% PLF, irrespective of the provisions
of Clause 5.2 (a) above.“

(vi) The Commission issued a Tariff Order dated 12.08.2003

in which it heard the Haryana Vidyut Prasaran Nigam Limited,

the HERC and members of the public. In the finding insofar

as the present appellant is concerned, the Commission in

sub-para (G) held as follows:-

“G. Availability of power from IPPs (Magnum)
Magnum (liquid fuel based plant) provided 94.9
MUs to HVPNL during FY 2002-03. HVPNL has
proposed to procure 160 MUs from this source.
This being the most expensive source is being
dis-allowed by the Commission.”

The Commission then held as follows:-

“The Commission has not allowed any power to be
sourced from Magnum. However, against the
volume of 160 MUs proposed by the licensee the
fixed cost at the rate of Rs. 1.29 per unit is
being allowed.”

Ultimately, the Commission concluded:

“For Magnum, the fixed cost of Rs. 206.4
million based on the HVPNL projected volume of
160 MUs and per unit fixed charge of Rs. 1.29
has been considered. The Commission has not
approved any purchase from this source in FY
2003-04, however, Commission recognizes the
Fixed Cost that has to be paid to the generator
irrespective of the fact whether any energy is
purchased or not.”

(vii) This Tariff Order which binds both parties was a

final order, not being challenged by either party.

(viii) Despite this order and the clear direction of the

Commission that fixed costs have to be paid to the generator

irrespective of whether energy is purchased or not, the HERC

order dated 23.03.2010 ultimately dismissed the appellant’s

appeal filed under Section 86(1)(f) of the Electricity Act

as follows:-

“Final Order
The above order of the Commission on each
issue needs to be given a concrete shape by
calculating the due amount payable to the
either party and whatever is the net to be paid
to the petitioner as per the following

After calculating the due amount within a
period of one month, first instalment of the
same may be paid within a period of two months
and the balance amount two months thereafter.
This amount however would not be reimbursed by
HERC through any claim or through FSA since the
respondents have been claiming FSA in respect
of MPGL under the head “Deemed Generation

Charges” and the same stands recovered from the
electricity consumers. Hence, whatsoever the
excess recovery they have made from the
consumer on this account, after settlement of
account with MPGL in the light of the findings
in the earlier paragraphs, the remaining amount
either be refunded back to the consumer or to
be adjusted against the future filing with the
prior approval of HERC. FSA formula approved
by the Commission itself provides for
subsequent adjustment of/under/over recovery of
the same.

In passing, the Commission would wish for
the revival of the plant to augment the
generating capacity in the State. It is
advised that both the parties may request a
generation expert at the Central Electricity
Authority (CEA) Govt. Of India to pay a visit
to the site to check up the present state of
the plant in presence of both the parties. The
fees for this maybe equally shared. Thereafter
the parties may work out a scheme for
operationalising the plant for the benefit of
all the stakeholders by entering into a fresh
PPA/renegotiating the existing one which is
workable and takes into account the financial
interest of both the parties and the interest
of the consumers of Haryana at large.

(ix) An appeal from this order was also dismissed by the

Appellate Tribunal by judgment dated 23.03.2012 in which

after setting out the various clauses of the PPA, the

Appellate Tribunal held as follows:-

“33. The above analysis of Article 8.2 would
indicate that the Appellant was under
obligation to make available the plant to
generate atleast 148.79 MU at 75% PLF. This
conclusion is supported by Article 6.1(j) & (k)
under which the Appellant has undertaken to
supply the Contracted Capacity as defined in
Schedule 3 of the PPA and works out to 143.79
for tested capacity of the Plant. These
provisions are reproduced below for better
understanding and completeness.
(i) Make available to HSEB not later than the
Required Synchronization Date, the Contracted
energy and the Contracted operating

Characteristics of each Units; and

(k) Operate and maintain the Project so as to
provide the HSEB with the Contracted energy and
the Contracted Operating Characteristics of the
Units reliably over the Term of this Agreement,
taking into account permissible degradation.

3.1 Formula for Contracted Electrical Output
Contracted Electrical output per year in
Million Kwh (MU) =
(8760 x 0.75 x 1000) (1-AuxCons.%)xTested Capacity in MW

= 8760 x 0.75 x 0.965 x 22.67/1000 = 143.79 MU.

34. In the light of above analysis, we hold
that the Appellant was under obligation to
declare annual availability of the plant to
atleast 75% of tested capacity so as to obtain
an annual PLF of 75%.”

2) Mr. Jayant Bhushan, learned senior counsel appearing on

behalf of the appellant has argued that because of the

Commission’s order of 12.08.2002 and because the power

generated by the appellant would impact the consumer as

electricity charges would then become very high, the

Commission made it clear that the appellant’s electrical

energy was not a source of power which could at all be

tapped as a result of which not even a single mega watt of

power was supplied or sold by the appellant to the

respondent. He, however, contended that this very

Commission’s order made it clear that this was in the

consumer interest, but that the appellant would be entitled

to recover its fixed cost, which unfortunately has been

missed by both the Commission as well as the Appellate

Tribunal in the impugned order. He also argued that both

the orders were faulty in their reading of Clause 8.2 of the

PPA which cannot be read so that supply at atleast 75% of

the Plant Load Factor be made a condition precedent for

claiming fixed energy charges, as that clause when properly

read makes it clear that the PPA itself made it clear that

once the power project has been set up by the appellant, the

fixed energy cost will have to be paid in any event.

3) As against this, Mr. Gurinder Singh Gill, learned

senior counsel appearing on behalf of the respondent,

supported the judgments of the Commission and the Tribunal,

and argued that a proper reading of Article 8.2 would make

it clear that it would become operative only when declared

availability is more than 75% of the Plant Load Factor.

4) Having heard learned counsel for both sides, these

appeals can be disposed of on the short ground that the

Commission’s Tariff Order of 12.08.2003 had made it clear

that fixed costs during the currency of the agreement for

generating electricity must be paid despite no supply having

been made because the tariff order itself interdicted such

supply in consumer interest. We have also noted that for

the years in question it is clear that the fixed cost that

has been demanded by the appellant from the respondent has

in fact been collected from the consumer but not paid over

to the appellant, which would result in an unjust windfall

for the respondent. On this ground, therefore, we set aside

the impugned order and declare that for the years in

question the demanded amount by the appellant towards fixed

cost of running their unit @ Rs. 1.29 per unit be paid by

the respondent within a period of 3 months from today.

5) Given the fact that the appellant has lost in both the

original forum as well as the appellate forum, and which has

taken over 15 years to decide, and given the fact that the

respondent is a Government-Company, we deem it appropriate

that this amount be paid with simple interest @ 3% per

annum. In case the amounts are not paid within three months

from today, the interest component shall become 6% p.a. for

payment made beyond 3 months. The impugned judgment is set

aside to the extent that the appeals are decided against the

respondent. The appeals are accordingly allowed.

Civil Appeal Nos. 4407-4408 OF 2011:

6) The appeals before the Appellate Tribunal were

dismissed on the ground that 327 days delay be not condoned.

In any case, we find that nothing survives in these appeals

after we have partly allowed the appeals in Civil Appeal

Nos. 7446-7447 OF 2012. These appeals are disposed of


…………………….. J.

…………………….. J.

New Delhi;
January 21, 2020.


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