A Commercial Document Cannot Be Interpreted In A Way That Contradicts The Parties' Original Intent And Purpose: Apex Court

The Supreme Court has observed that a commercial document cannot be interpreted in a way that it contradicts the original purpose and intent of the parties to the document.

The Court observed thus in an appeal against the judgment of the Appellate Tribunal for Electricity (APTEL) at New Delhi by which it dismissed the appeal against an order of the Central Electricity Regulatory Commission (CERC).

The three-Judge Bench comprising CJI D.Y. Chandrachud, Justice J.B. Pardiwala, and Justice Manoj Misra held, “A commercial document cannot be interpreted in a manner that is at odds with the original purpose and intendment of the parties to the document. A deviation from the plain terms of the contract is warranted only when it serves business efficacy better. The appellant’s arguments would entail reading in implied terms contrary to the contractual provisions which are otherwise clear. Such a reading of implied conditions is permissible only in a narrow set of circumstances.”

The issue that arose for consideration before the Bench was whether CERC and APTEL were justified in affixing liability to pay fixed charges on the appellant i.e., Maharashtra State Electricity Distribution Company Limited.

Senior Advocate Vikas Singh represented the appellant while Senior Advocate C Aryaman Sundaram represented the respondents.

Factual Background -

The first respondent, an electricity transmission company called Ratnagiri Gas And Power Private Limited, filed a petition under Section 79 of the Electricity Act, 2003 against the appellant, seeking the resolution of issues arising out of the non-availability of domestic gas; beneficiaries’ reservations to allow the first respondent to enter into contracts for alternate fuel, the revision of the Normative Annual Plant Availability Factor and directions to the beneficiaries to pay fixed charges due to the first respondent. CERC, by its order held the appellant liable to pay fixed charges to the first respondent. CERC’s decision was upheld by APTEL and the civil appeal against the APTEL order was disposed of by the Supreme Court by an order, whereby the appellant was granted liberty to move the court when it became necessary.

Consequently, there was correspondence between the appellant and the first respondent regarding the liability towards fixed charges. The appellant disclaimed any liability under the Power Purchase Agreement stating that it stood absolved of the fixed charges since the capacity declaration was made by the first respondent based on Recycled Liquid Natural Gas (RLNG), without the appellant’s consent. The first respondent filed an execution petition before APTEL seeking the payment of Rs. 5287.76 crores together with an amount of Rs. 1826 crores in accordance with the APTEL order. Notice was issued on the execution petition and thus, in light of the subsequent events and the liberty granted by the Court, an appeal was preferred by the appellant.

The Supreme Court after hearing the contentions of the counsel noted, “The appellant does not dispute the shortage of domestic fuel but merely objects to the “unilateral” decision to declare capacity based on RLNG, which the appellant states violated the mandatory approval requirement under clause 5.9 of the PPA, thereby exonerating it of the liability to pay fixed capacity charges. … In accordance with settled principles governing the interpretation of contracts, the PPA is required to be read as a whole.”

The Court further noted that an arrangement involving a transition from one primary fuel to another primary fuel is permissible by the clause, even without the appellant’s agreement.

“The requirement of an agreement, mandated for an arrangement involving liquid fuel cannot be read into the plain text of the former part of Clause 4.3. Thus, the capacity declaration based on RLNG could be done unilaterally, unencumbered by the requirement of the appellant’s consent in the latter half or the prior approval requirement under Clause 5.9 of the PPA”, said the Court.

The Court added that the first respondent was compelled to make alternate arrangements in view of the country-wide shortage of domestic gas, making RLNG a viable and contractually permissible alternative.

“Capacity charges mandated under Clause 5.2 hinge on the declared capacity that the Station is capable of delivering to its beneficiaries. Energy Charges, on the other hand, are payable only against the actual energy delivered. The appellant’s liability for the former is actual delivery agnostic. It arises as long as the declared capacity is made in terms of the PPA i.e. Clause 4.3”, also said the Court.

The Court concluded that deviation from the plain terms is not merited and militates against business efficacy as it has a detrimental impact on the viability of the first respondent.

Accordingly, the Apex Court dismissed the appeal and ordered that the execution proceedings pursuant to the execution petition before the APTEL be continued.

Cause Title- Maharashtra State Electricity Distribution Company Limited v. Ratnagiri Gas and Power Private Limited & Ors. (Neutral Citation: 2023 INSC 993)

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