corporate laws – Electricity laws – whether the respondent can generate power with RLNG? – No = The Andhra Pradesh Electricity Regulatory Commission (hereinafter referred to as “the Commission”), in O.P. No. 20 of 2013 dated 08.08.2013, preferred by the respondent, held that the term ‘fuel’ as used in the PPA meant natural gas only in its natural form, and did not include RLNG. Simply because the physical composition of natural gas and RLNG are similar, it does not automatically entitle the respondent to generate power with RLNG, which was more expensive and not domestically available, affecting the per unit supply of power generated by it, as ultimately the consumer would have to pay more.= inevitable conclusion that the intention of the parties under the agreement, as amended from time to time, was to generate power from fuel reasonably priced, so as to ultimately make available power to the consumers at reasonable rates. The choice of fuel as natural gas only has, therefore, to be understood as being confined to natural gas only in its natural form. The respondent was well aware that RLNG was never intended to be included in the definition of natural gas as understood by the parties, notwithstanding that it may be a variant of natural gas. –

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL No. 8747 of 2014

TRANSMISSION CORPORATION OF

ANDHRA PRADESH LTD. AND OTHERS …….APPELLANT(S)

VERSUS

M/s. GMR VEMAGIRI POWER

GENERATION LTD. AND ANOTHER ……RESPONDENT(S)

JUDGMENT

NAVIN SINHA, J.

The controversy for determination in the present appeal

is, whether the word ‘fuel’ as used in clause 1.1.27 of the

Power Purchase Agreement (hereinafter referred to as ‘PPA’)

means “natural gas only” or includes Regasified Liquefied

Natural Gas (hereinafter referred to as ‘RLNG’) also.

1

2. The Andhra Pradesh Electricity Regulatory Commission

(hereinafter referred to as “the Commission”), in O.P. No. 20 of

2013 dated 08.08.2013, preferred by the respondent, held that

the term ‘fuel’ as used in the PPA meant natural gas only in its

natural form, and did not include RLNG. Simply because the

physical composition of natural gas and RLNG are similar, it

does not automatically entitle the respondent to generate

power with RLNG, which was more expensive and not

domestically available, affecting the per unit supply of power

generated by it, as ultimately the consumer would have to pay

more.

3. In Appeal No. 222 of 2013 preferred by the respondent,

the Appellate Tribunal by the impugned order dated

30.06.2014 held that use of the word “only” after “natural gas”

in the PPA dated 02.05.2007 had to be understood in context

of the deletion of other alternate fuel such as Naphtha etc.

incorporated in the earlier PPAs, and it was never intended to

restrict the meaning of the word natural gas to exclude RLNG,

2

which was a variant of natural gas and did not come in the

category of an alternate fuel. It further held that the higher

price of RLNG could not be a determinative factor to exclude it

from the agreement as any increase in price of gas was an

accepted risk, especially in view of the non­availability of

natural gas from the KG­D6 basin. The use of RLNG had also

been permitted on earlier occasions without any amendment

to the PPA.

4. The predecessor of the appellant, the Andhra Pradesh

State Electricity Board, in May, 1995 invited bids for

establishing short gestation gas/Naphtha/fuel oil based

power stations to bridge the demand supply gap of power in

the State of Andhra Pradesh. Pursuant to the same, a PPA

was executed between the parties on 31.03.1997 under which

Naphtha was the primary fuel and gas an alternate fuel.

Considering the high price of Naphtha, in March 2000, the

Government of Andhra Pradesh decided to make gas the

primary fuel. The Ministry of Petroleum on 05.06.2000

3

allotted 1.64 MMSCMD of natural gas to the respondent from

the KG­D6 Basin sourced through the Gas Authority of India

Ltd (GAIL), leading to a gas supply agreement dated

31.08.2001 between the respondent and the latter. The PPA

was accordingly amended on 18.06.2003 making gas the

primary fuel and Naphtha an alternate fuel. The PPA

underwent further amendment on 02.05.2007, restricting the

term ‘fuel’ to “natural gas only”. A comparative status of the

three PPA’s can beneficially be set out as follows:

PPA dated

31.03.1997

Amendment

Agreement to the

PPA dated

18.06.2003

Amendment

Agreement

dated

02.05.2007

“1.1.27) “Fuel:

means gas, Naptha,

low sulphur heavy

stock or furnace oil,

and the like, that is

intended to be used

as primary fuel, by

one or more units of

the Project to

generate power from

the Project or in case

of unavailability of

Naptha any of the

above as alternate

1.1.27) “Fuel:

means Natural Gas

that is intended

to be used as

primary fuel by

one or more units

of the project to

generate or in case

of unavailability of

primary fuel,

Naptha or Low

Sulphur heavy

stock and the like

as alternate fuel.”

1.1.27) “Fuel:

means

Natural Gas

only.”

4

fuel.”

5. GAIL having been unable to supply gas under the

agreement due to prioritisation of other sectors, the

respondent was permitted to purchase natural gas from M/s.

Reliance Industries Ltd (RIL) at GAIL prices. The respondent,

on 07.08.2012 and 27.08.2012, sought permission to allow

use of RLNG as fuel for generating power. The appellant

rejected the request on 10.09.2012 stating that under the PPA

dated 02.05.2007, fuel meant “natural gas only” and did not

include RLNG, which was priced much higher affecting the per

unit price of power generated from the same to the ultimate

detriment of the consumers.

6. Shri Basava Prabhu Patil, learned senior counsel

appearing for the appellant, submitted that under the PPA, it

was only natural gas in its natural form which was agreed to

be used as fuel for generation of power. Merely because RLNG

5

may be a variant of natural gas, will not suffice to bring it

within the definition of fuel under the PPA. The cost of RLNG

being three to four times higher than natural gas, the

Commission rightly held that it was also a relevant factor to

hold that RLNG was never intended by the parties to be

included in the agreement.

7. The word ‘fuel’, as defined in the agreement, had to be

given its natural meaning by confining it to natural gas only as

intended by the parties. The definition could not be extended

so as to include RLNG, as the parties never intended the same.

There is no ambiguity in language warranting any inclusion to

the definition either by implication or intention. Even if there

was any ambiguity with regard to the intendment of the

parties, the true intent has to be gathered from the plain

meaning of the words used, read conjunctively with all

surrounding circumstances and documents. Applying the

common parlance test, RLNG was not synonymous with

natural gas in the business and neither interchangeable,

6

because of the additional processes required in the latter and

the resultant higher cost involved including importation, as

distinct from natural gas available at a lesser price and

domestically.

8. Under the PPA dated 31.03.1997, Naphtha was the

primary fuel and gas was an alternate fuel. Clause 3.3 dealing

with energy charge defined cost of fuel based on indigenous

and importation cost. The PPA contemplated approval of the

fuel supply agreement by the fuel supply committee, to ensure

reasonable prices as the cost of power generation was of

paramount consideration in the interest of the consumer. The

cost of Naphtha being higher, the PPA came to be amended on

18.06.2003 making natural gas the primary fuel, and Naphtha

an alternate fuel. If RLNG was in contemplation of the parties,

and was considered to fall within the term natural gas, there

would have been some discussion regarding it in the

deliberations of the Commission while approving the

amendments to the PPA, especially in view of the price

7

difference. Such absence makes it manifest that the parties

never intended to include RLNG in the term natural gas. The

significance of the words “only” after “natural gas” in the third

PPA dated 02.05.2007 cannot be lost sight of. It was

necessitated in context of the realization that the parties may

have resorted to other costly alternate fuels consequent to the

dismantling of the administered price mechanism and the fuel

supply committee.

9. The fact that RLNG may have been permitted to be used

for a short period of seven days from 16.04.2009 to

23.04.2009 under pressing circumstances of a power crisis, by

special orders under Section 11 of the Electricity Act, 2003 or

again for a short duration from 15.02.2011 to 31.05.2011

cannot be stretched to contend that RLNG was intended to be

included within the term natural gas. The cost of power

generated from natural gas was Rs.1.75 per KWH while that

from RLNG works out to Rs.4.63 per KWH and the financial

burden for this short duration is Rs.427 crores. In March and

8

April use of RLNG was permitted at per unit generation cost of

Rs.9/­ compared to Rs.3/­ per unit with existing natural gas

leading to a financial burden of Rs.3.7 crores per day. These

exceptions can never be construed to mean the norm to

contend that use of RLNG was always in the contemplation of

the parties and was intended to be included within the term

natural gas. The very fact that the respondent sought

permission on 07.08.2012 and 27.08.2012 to use RLNG for

power generation makes it manifest that even as per its

understanding, RLNG was not included within the term

natural gas according to the intent of the parties. The

appellant in its reply dated 10.09.2012 had reiterated that

RLNG did not fall within the ambit of the PPA which was

confined to natural gas only citing the cost difference of power

per unit also.

10. A contract document had to be interpreted in accordance

with the language used, with reference to the context in which

it came to be prepared. A technical view of an agreement, torn

9

out of context, cannot be taken to reinterpret the agreement

and arrive at a new finding with regard to the intendment of

the parties by including something which was never intended

to be included, to the prejudice of a party to the contract,

while giving an undue advantage to the other. A primary

consideration will also be the understanding of the parties of

the terms of the contract and what was intended, as reflected

inter alia from their conduct. The contract being a commercial

document, utmost importance had to be given to its efficacy.

Shri Patil, in support of the submissions placed reliance on

Polymat India (P) Ltd. & Anr. vs. National Insurance Co.

Ltd. & Ors., 2005 (9) SCC 174, Gedela Satchidananda

Murthy vs. Dy. Commissioner, Endowments Department,

A.P. & Ors., 2007 (5) SCC 677, Timblo Irmaos Ltd., Margo

vs. Jorge Anibal Matos Sequeira & Anr., 1977 (3) SCC 474,

Sappani Mohamed Mohideen and Anr. vs. R.V.

Sethusubramania Pillai and Ors., 1974 (1) SCC 615,

Trutuf Safety Glass Industries vs. Commissioner of Sales

10

Tax, U.P., (2007) 7 SCC 242, The Union of India vs. M/s.

D.N. Revri and Co. and Ors., 1976 (4) SCC 147, Nabha

Power Ltd. vs. Punjab State Power Corporation Ltd. &

Anr., 2017 SCC Online 1239 and Bharat Aluminum

Company vs. Kaiser Aluminum Technical Services Inc.,

2016 (4) SCC 126.

11. Shri Vikas Singh, learned senior counsel appearing for

the Respondent, submitted that the original bid documents

permitted import of fuel also, and fuel tie up linkage was the

responsibility of the bidder. The Respondent invested

approximately Rs.1153.10 crores in setting up the power

generation plant, of which, 68.29% of the funding was from

banks and financial institutions. The plant has operated

intermittently for approximately 64 months only in the last 11

years. The conduct of the appellant in not accepting

availability declaration with regard to RLNG was unjustified.

The appellant was well aware of the possibility of future hike

in gas prices, and more particularly after dismantling of the

11

administrated price mechanism inclusive of inflation, all of

which would make the gas prices market driven. Therefore,

merely because the cost of RLNG was higher could not be a

ground to contend that it was never intended to be included

within the definition of natural gas or was contrary to interest

of the consumer. RLNG was but a form of natural gas,

compressed for transformation from gaseous to liquid state,

reducing the volume to facilitate transportation in a safe and

stable manner. Once delivered at the destination, it is

regasified and then supplied to the consumer. Even according

to the dictionary meaning they are the same.

12. The deletion of the words “intended to be used” after the

words “natural gas”, as used in the second PPA, and the

replacement thereof in the third PPA by the words “natural gas

only” gave a much wider meaning and amplitude to the word

natural gas so as to take within its ambit RLNG also. The

deletion of “importation charges” in the PPA dated 18.06.2003

was of no significance as RLNG was to be delivered at the

12

project site through the pipeline, and the cost of fuel was to be

at the metering point at the project site, which would be

inclusive of importation cost. Evidently there would be no

separate charges by GAIL towards importation of RLNG. So

long as the supplies were at GAIL prices, the appellants

cannot raise objections with regard to price.

13. The term natural gas has not been defined under the

PPA. The definition of natural gas in Section 2(za)(i) of the

Petroleum and Natural Gas Regulatory Board Act, 2006

(hereafter referred to as the “PNGRB Act”) includes both

liquefied natural gas (LNG) and RLNG. The appellants on more

than one occasion had themselves permitted use of RLNG for

production of power in 2011, 2012 and 2013. It is

demonstrative of the fact that RLNG was never intended to be

excluded under the PPA. It was only when the respondent

wrote to the appellant for operationalising the RLNG scheme,

that the appellant replied on 27.03.2015 raising objection to

RLNG being outside the terms of the PPA. The respondent had

13

never sought permission from the appellant for use of RLNG

by its letters dated 07.08.2012 and 27.08.2012, but merely

given intimation about what was otherwise permissible under

the PPA. After the dismantling of the administered price

mechanism and the fuel Supply Committee, there was no

requirement for consent or approval of the appellant.

14. The appellant having itself permitted use of RLNG on

more than one occasion, cannot contend its exclusion

especially when the agreement clearly is suggestive of its

inclusion. Alternately, there had been waiver on part of the

appellant by having permitted its use on more than one

occasion. The appellant cannot be permitted to approbate and

reprobate. Natural gas had been defined in Association of

Natural Gas & Ors. vs. Union of India & Ors., 2004 (4) SCC

489. The plea that power generated by RLNG would be more

costly and not in the interest of the consumer is belied by the

fact that today the appellant is purchasing power at higher

14

rate. The Director General, Petroleum Planning and Analysis

Cell had now fixed price for marketing including pricing

freedom for gas to be produced from discoveries in deepwater,

ultra­deepwater and high pressure­high temperature areas for

the period 01.04.2016 to 31.09.2016 at US$ 6.61/MMBTU on

GCV basis. On 05.05.2016, the respondent wrote to the

appellant informing that GAIL had communicated that ONGC

has indicated availability of the gas in the KG basin from its

deepwater fiels­S1 and VA fields at the rate of 6.3$/MMBTU

even which has not been acceded to, as being beyond the PPA.

15. We have considered the submissions on behalf of the

parties, and are not in agreement with the conclusions of the

Appellate Tribunal.

16. The original PPA dated 31.03.1997, provided for Naphtha

to be used as the primary fuel for generation of power and gas

was an alternate fuel. Importation was also permissible. The

15

price was to be fixed by the fuel supply committee, both to

keep it reasonable, and to ensure that the cheaper option was

always used. In March 2000, the Government of Andhra

Pradesh, due to the cost factor, decided to replace gas as the

primary fuel, and Naphtha was made an alternate fuel leading

to allotment of natural gas by the Ministry of Petroleum and

execution of an agreement between the respondent and GAIL.

The PPA was then amended on 18.06.2003 making gas the

primary fuel. Subsequently, when GAIL was unable to supply

the allocated quantities of natural gas to the respondent

because of sector prioritisation, the respondent was permitted

to obtain supplies of natural gas from RIL. The realisation

that in the circumstances, the generator could resort to use of

other costly fuels also, led to the third amended PPA dated

02.05.2007 confining the definition of ‘fuel’ to “natural gas

only”.

17. It is relevant to notice that at both stages of the

amendment to the PPA, in the proceedings before the

16

Commission under Section 21(5) of the Andhra Pradesh

Electricity Reforms Act, 1998, the parties never referred to the

availability of RLNG as fuel contemplated within the term

“natural gas” and the discussion was confined to “natural gas

only”. Had the parties intended otherwise, or the respondent

had any such inkling in mind of RLNG being a variant of

natural gas and consequently intended to be included in it,

coupled with its availability as compared to natural gas, surely

it would have figured in the discussion before the Commission.

The absence of the same, combined with RLNG having to be

imported, deletion of the importation clause in the PPA of

18.06.2003, the higher price of RLNG, leads to the inevitable

conclusion that it was never in the contemplation of the

parties that RLNG was to be included in the term “natural gas”

even though it may be a variant of the same. It stands to

reason that if Naphtha was removed as primary fuel because

of the cost factor and made an alternate fuel in the second

amendment to the PPA, the question of RLNG being included

17

within the term of “natural gas only” irrespective of the cost

factor, will not stand the test of reason.

18. A wrong question will inevitably lead to a wrong answer.

The question for consideration presently is not if RLNG is a

form of natural gas, but whether the parties intended to

exclude any form of gaseous fuel from the ambit of the

contract except for natural gas in its natural form from the

domestic market, keeping the price of gas in mind, which

would ultimately set the price per unit of electricity for the

consumer. The PPA is a technical commercial document. It

has been drafted by persons conversant with the business.

RLNG and natural gas as used in the agreement are not

synonymous or interchangeable. The principle of business

efficacy will also have to be kept in mind for interpreting the

contract. The terms of the agreement have to be read first to

understand the true scope and meaning of the same with

regard to the nature of the agreement that the parties had in

mind. It will not be safe to exclude any word in the same. In

18

Khardah Company Ltd. vs. Raymon & Co. (India) Private,

Ltd., 1963 (3) SCR 183, on interpretation of a contract it was

observed as follows:

“18. … We agree that when a contract has

been reduced to writing we must look only to

that writing for ascertaining the terms of the

agreement between the parties but it does not

follow from this that it is only what is set out

expressly and in so many words in the

document that can constitute a term of the

contract between the parties. If on a reading of

the document as a whole, it can fairly be

deduced from the words actually used therein

that the parties had agreed on a particular

term, there is nothing in law which prevents

them from setting up that term. The terms of a

contract can be expressed or implied from

what has been expressed. It is in the ultimate

analysis a question of construction of the

contract. And again it is well established that

in construing a contract it would be legitimate

to take into account surrounding

circumstances…”

19. It will not be a safe method to interpret a contract by

picking out one clause of the same defining fuel, apply a

technical scientific meaning to it as observed in Truetuf

Safety Glass Industries (supra) and then conclude that being

19

a form of natural gas, RLNG was intended to be impliedly

included in the definition of fuel. The terms of a contract have

to be given their plain meaning with regard to the intendment

of the parties as to what was intended to be included and what

was not intended to be included, as distinct from an express

exclusion. The commercial parlance test will also have to be

applied as to whether those in the business consider the two

forms of gas as synonymous and interchangeable. Quite

obviously the answer has to be in the negative considering the

importation of RLNG, additional processes involved and the

consequent higher costs involved.

20. In the event of any ambiguity arising, the terms of the

contract will have to be interpreted by taking into

consideration all surrounding facts and circumstances,

including correspondence exchanged, to arrive at the real

intendment of the parties, and not what one of the parties may

contend subsequently to have been the intendment or to say

20

as included afterwards, as observed in Bank of India & Anr.

vs. K. Mohandas & Ors., (2009) 5 SCC 313:

“28. The true construction of a contract must

depend upon the import of the words used and

not upon what the parties choose to say

afterwards. Nor does subsequent conduct of

the parties in the performance of the contract

affect the true effect of the clear and

unambiguous words used in the contract. The

intention of the parties must be ascertained

from the language they have used, considered

in the light of the surrounding circumstances

and the object of the contract. The nature and

purpose of the contract is an important guide

in ascertaining the intention of the parties.”

21. The respondent’s letters dated 07.08.2012 and

27.08.2012 become crucially relevant for the understanding

that it was itself under no misapprehension that RLNG was

never intended to be included within the definition of natural

gas under the contract. In the former, the respondent wrote,

“We await the confirmation from your good office to take it up

further for obtaining necessary consent, if any, in accordance

with law for use of RLNG and the resultant tariff increase.”

The latter again requested for permission to use RLNG to

21

supplement shortfall in gas from the KG­D6 Basin, requesting

to acknowledge its usage. The contention of the respondent

that these were only intimations and not request for

permission to use RLNG stands belied from the plain language

used in them. The appellant in its reply dated 10.09.2012

explicitly stated that under the agreement no other fuel except

natural gas could be used and that RLNG was never

contemplated in the definition of fuel declining to accept the

spot supply agreement for RLNG supplies, citing the cost of

power per unit from the same at Rs.9­10 in comparison to

Rs.3/­ per unit from natural gas. It is only thereafter the

respondent approached the Commission in OP No.20 of 2013.

The pleadings of the respondent, as quoted hereinafter, further

confirm its own understanding that RLNG was never intended

to be included in the definition of fuel which was confined to

natural gas only :­

“9. Since the above scenario affects the

generation activities of the Petitioner, the

Petitioner proposed to use RLNG. In this

respect, the Petitioner has already made

representations to the Respondent Nos. 2 and 3

22

vide its letters dated 7.8.2012 and 27.8.2012

(produced as Annexures P­2 and P­3

respectively). In both these letters, the

Petitioner appealed to the said Respondents to

allow usage of RLNG and substantiated the

circumstances/reasons for the said request of

the petitioner.

10. To the utter surprise and shock of the

Petitioner, instead of acceding to the above

requests of the Petitioner, the Respondent No.3

has rejected the above requested of the

Petitioner vide its letter dated 10.09.2012.”

22. The sporadic use of RLNG on one or two occasions under

pressing circumstances, after due orders under Section 11 of

the Electricity Act, 2003, for short durations, cannot make the

exception the norm to contend either that RLNG was included

in the term fuel or that the appellant had agreed to its use.

The question of waiver by the appellant or application of the

principle of approbate and reprobate does not arise in the facts

of the case.

23. The present was a contract for purchase of power

generated from fuel which was reasonably priced so as to keep

23

in check the cost of power generated from the same, in the

interest of the consumer. Undoubtedly, cost of fuel was a

primary consideration in the mind of the appellant. The

contextual background in which the PPA originally came to be

made, the subsequent amendments, the understanding of the

respondent of the agreement as reflected from its own

communications and pleadings make it extremely relevant

that a contextual interpretation be given to the question

whether RLNG was ever intended to be included within the

term “Natural Gas”, as observed in Bihar State Electricity

Board vs. Green Rubber Industries, (1990) 1 SCC 731:

“23…. Every contract is to be considered with

reference to its object and the whole of its

terms and accordingly the whole context must

be considered in endeavouring to collect the

intention of the parties, even though the

immediate object of enquiry is the meaning of

an isolated clause….”

24. In the facts and circumstances of the present case, there

can be no manner of doubt that the parties by their conduct

and dealings right up to the institution of proceedings by the

respondent before the Commission were clear in their

24

understanding that RLNG was not to be included within the

term “Natural Gas” under the PPA. The observations in

Gedela Satchidananda Murthy (supra) are considered

apposite in the facts of the present case :­

“32…The principle on which Miss Rich relies is

that formulated by Lord Denning, M.R. in

Amalgamated Investment & Property Co. Ltd.

v. Texas­Commerce International Bank Ltd.,

[1982] 1 QB at p.121:

‘If parties to a contract, by their course

of dealing, put a particular interpretation on

the terms of it—on the faith of which each of

them—to the knowledge of the other—acts

and conducts their mutual affairs—they are

bound by that interpretation just as much

as if they had written it down as being a

variation of the contract. There is no need to

inquire whether their particular

interpretation is correct or not—or whether

they were mistaken or not—or whether they

had in mind the original terms or not.

Suffice it that they have, by their course of

dealing, put their own interpretation on

their contract, and cannot be allowed to go

back on it.’

(emphasis supplied)”

25. A commercial document cannot be interpreted in a

manner to arrive at a complete variance with what may

25

originally have been the intendment of the parties. Such a

situation can only be contemplated when the implied term can

be considered necessary to lend efficacy to the terms of the

contract. If the contract is capable of interpretation on its

plain meaning with regard to the true intention of the parties

it will not be prudent to read implied terms on the

understanding of a party, or by the court, with regard to

business efficacy as observed in Satya Jain (D) thr. Lrs. &

Ors. vs. Anis Ahmed Rushdie (D) thr. Lrs. & Ors., (2013) 8

SCC 131, as follows:­

“33. The principle of business efficacy is

normally invoked to read a term in an

agreement or contract so as to achieve the

result or the consequence intended by the

parties acting as prudent businessmen.

Business efficacy means the power to produce

intended results. The classic test of business

efficacy was proposed by Lord Justice

Bowen,L.J. in Moorcock. This test requires

that a term can only be implied if it is

necessary to give business efficacy to the

contract to avoid such a failure of

consideration that the parties cannot as

reasonable businessmen have intended. But

only the most limited term should then be

implied–the bare minimum to achieve this

goal. If the contract makes business sense

26

without the term, the courts will not imply the

same. The following passage from the opinion

of Bowen, L.J. in the Moorcock (supra) sums

up the position: (PD p.68)

“…In business transactions such

as this, what the law desires to effect by

the implication is to give such business

efficacy to the transaction as must have

been intended at all events by both

parties who are business men; not to

impose on one side all the perils of the

transaction, or to emancipate one side

from all the chances of failure, but to

make each party promise in law as

much, at all events, as it must have

been in the contemplation of both

parties that he should be responsible

for in respect of those perils or

chances.”

34. Though in an entirely different context,

this court in United India Insurance Co. Ltd. v.

Manubhai Dharamasinhbhai Gajera and Ors.

had considered the circumstances when

reading an unexpressed term in an agreement

would be justified on the basis that such a

term was always and obviously intended by

and between the parties thereto. Certain

observations in this regard expressed by

Courts in some foreign jurisdictions were

noticed by this court in Para 51 of the report.

As the same may have application to the

present case it would be useful to notice the

said observations :(SCC p.434)

“51. …’…”Prima facie that which in any

contract is left to be implied and need

not be expressed is something so

obvious that it goes without saying; so

27

that, if, while the parties were making

their bargain, an officious bystander,

were to suggest some express provision

for it in their agreement, they would

testily suppress him with a common

‘Oh, of course!’ ‘’ Shirlaw v. Southern

Foundries (1926) Ltd., KB p.227.’

* * *

“An expressed term can be implied if and

only if the court finds that the parties

must have intended that term to form part

of their contract: it is not enough for the

court to find that such a term would have

been adopted by the parties as

reasonable men if it had been suggested

to them: it must have been a term that

went without saying, a term necessary to

give business efficacy to the contract, a

term which, although tacit, formed part of

the contract which the parties made for

themselves. Trollope and Colls Ltd. v.

North West Metropolitan Regl. Hospital

Board, All ER p.268a­b.’ ”

35. The business efficacy test, therefore,

should be applied only in cases where the

term that is sought to be read as implied is

such which could have been clearly

intended by the parties at the time of

making of the agreement…”

26. The definition of natural gas in Section 2(za)(i) of the

PNGRB Act, has no relevance to the present controversy as the

28

Act was enacted with the object to oversee and regulate

refining, processing, distribution and marketing of petroleum

products and natural gas. Similarly, the observation made in

Association of Natural Gas (supra) in context of the

controversy with regard to legislative entry has no relevance to

the interpretation of the PPA.

27. The aforesaid discussion, therefore, leads to the

inevitable conclusion that the intention of the parties under

the agreement, as amended from time to time, was to generate

power from fuel reasonably priced, so as to ultimately make

available power to the consumers at reasonable rates. The

choice of fuel as natural gas only has, therefore, to be

understood as being confined to natural gas only in its natural

form. The respondent was well aware that RLNG was never

intended to be included in the definition of natural gas as

understood by the parties, notwithstanding that it may be a

variant of natural gas.

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28. The appeal, therefore, has to be allowed, the Appellate

Tribunal judgment is reversed, and the Commission order

dated 08.08.2013 is affirmed.

……………………………….J.

(Rohinton Fali Nariman)

…….………………………..J.

(Navin Sinha)

New Delhi,

February 16, 2018

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