corporate laws -M.P. Power Management Company Ltd.- Suffice to note that in cases of delay, Articles 2.5 and 2.6 provide for levy of penalty. As observed by the High Court, since the contract permits imposition of penalty, respondent No.1 is liable to pay penalty in terms of clause 2.5.1 of the PPA for the delay. But the action of the appellant in terminating the contract is arbitrary and was rightly set aside by the High Court.

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 3600 OF 2018

(Arising out of SLP(C) No.23848 of 2017)

M.P. POWER MANAGEMENT COMPANY LTD. …Appellant

Versus

RENEW CLEAN ENERGY PVT. LTD. & ANR. …Respondents

J U D G M E N T

R. BANUMATHI, J.

Leave granted.

2. This appeal arises out of the judgment passed by the High Court

of Madhya Pradesh, Principal Seat at Jabalpur in and by which the High

Court allowed the Writ Petition No.12432 of 2017 setting aside the order

of termination of contract dated 11.08.2017 while maintaining the

appellant’s action on invocation of bank guarantee in terms of clause

2.5.1 of the contract.

3. Brief facts which led to filing of this appeal are as follows:

The appellant-M.P. Power Management Company Ltd. initiated the

process of procurement of power from Grid Connected Solar Energy

through tariff based competitive bidding for meeting its Renewable

Purchase obligations in the State of Madhya Pradesh. Accordingly, a

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Request for Proposal (RFP) dated 06.05.2015 was issued by the

appellant for long term procurement of 300 MW power from Grid

connected Solar Energy Sources through tariff based competitive

bidding. Out of 100 bidders who participated in the bidding process,

respondent No.1-ReNew Clean Energy Private Ltd. was selected on the

basis of cheaper merit order rates. The appellant issued a Letter of

Intent dated 23.10.2015 in favour of respondent No.1 allotting 51 MW

capacity at quoted tariff of Rs.5.457/kwh for twenty five years which was

accepted by respondent No.1 by its consent letter dated 26.10.2015. A

Power Purchase Agreement (PPA) dated 10.11.2015 was executed

between the appellant and respondent No.1 for sale and procurement of

51 MW solar power, for which, respondent No.1 submitted a bank

guarantee from respondent No.2-Bank for an amount of

Rs.15,30,00,000/- valid till January, 2018.

4. Since respondent No.1 was unable to obtain the requisite land for

establishing the power plant, respondent No.1 requested assistance

from the State Government. Accordingly, the Collector, District-Rajgarh

by order dated 21.04.2016 allotted 96.73 acres of revenue land to MP

New and Renewable Energy Department for further allotment on lease

to respondent No.1. This was done by the appellant even though the

land procurement was the obligation of the bidder.

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5. According to respondent No.1, there were difficulties in accessing

the land, because when measurement of land was taken on 29.06.2016,

it was found encroached and the project team faced heavy resistance,

physical attacks etc. and therefore, respondent No.1 vide its letter dated

29.09.2016 requested the appellant to allow to change of location of the

project. The said permission sought for by respondent No.1 was

granted by the appellant by its Resolution dated 29.12.2016. The

relevant portion of the Resolution reads as under:-

“Resolved that condition for not allowing change of location after 210

days from signing of PPA be relaxed and following Solar Power

developers be allowed to change the location of their respective project,

subject to provision of clause 2.5 and 2.6 of the PPA.”

6. After permission was granted to change the location of the

project, respondent No.1 purchased lands to an extent of about 253

acres in villages Bansara and Pipriya Rai in Ashok Nagar district and

undertook the development/construction activities. On 10.07.2017,

respondent No.1 wrote to appellant that “commissioning process was in

final stages and we expect to commission the plant on 31.08.2017

(tentative date), which is ahead of scheduled commissioning date of

07.09.2017.”

7. As per clause 2.5.1 of the PPA, a maximum period of nine months

beyond 07.06.2016 for achieving Conditions Subsequent enables the

appellant to terminate the agreement if respondent No.1 failed to satisfy

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the Conditions Subsequent by this date along with penalty which was to

be calculated as per clause 2.5.1 of the PPA. In the light of the

abovesaid provisions of the PPA, the appellant by order dated

11.08.2017 terminated the PPA and imposed a penalty of

Rs.11,95,54,200/- on respondent No.1. Being aggrieved, respondent

No.1 filed Writ Petition No.12432 of 2017 before the High Court praying

that the appellant be directed not to give effect to termination and

encashment of performance bank guarantee. The High Court vide

impugned judgment dated 18.08.2017 partly allowed the writ petition

setting aside the order of termination of the contract while maintaining

the invocation of the bank guarantee.

8. We have heard the learned counsel appearing for the parties and

perused the impugned judgment and materials on record.

9. Clause 2.1 of the PPA required respondent No.1 to fulfil all

Conditions Subsequent within a period of 210 days from the effective

date i.e. 06.06.2017, failing which Article 2.5 of the PPA allowed further

extension up to nine months for fulfillment of the Conditions Subsequent

subject to payment of liquidated damages in terms of the PPA. Clause

2.5 of the PPA reads as follows:-

2.5 DELAY IN ACHIEVING CONDITIONS SUBSEQUENT

2.5.1. In case of delay in achieving any of the Conditions Subsequent

under clause 2.1 (a to h), as may be applicable, MPPMCL shall

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encash CPG (submitted by Seller @ Rs.30 Lakhs/MW) as under,

subject to Force Majeure:

a) Delay from 0-3 months – 1% per week.

b) Delay from 3-6 months – 2% per week for the

period exceeding 3 months, apart from (a) above.

c) Delay from 6-9 months – 3% per week for the

period exceeding 6 months, apart from (a) and (b)

above.

d) In case of delay of more than 9 months, MPPMCL

shall terminate PPA and release balance amount of

CPG.

10. Since respondent No.1 was unable to obtain the requisite land, on

request by respondent No.1, the State Government allotted 96.73 acres

of land at district Rajgarh to the appellant for being allotted to

respondent No.1 on lease. According to respondent No.1, upon

initiation of measurement and demarcation exercise by the revenue

officials, the land was found to be heavily encroached and there was

stiff resistance which continued every time respondent No.1 tried to

approach the said land and therefore, respondent No.1 could not

access the project site and commence any construction activities. On

request by respondent No.1 by its letter dated 29.09.2016, respondent

No.1 sought for change of location of the project. The Board of

Directors considered the request of respondent No.1 and by Resolution

dated 29.12.2016 allowed change of location of the project. Thereafter,

respondent No.1 purchased the land to an extent of 253 acres in village

Bansara and Pipriya Rai in Ashok Nagar district within a period of about

eighty three days from the date of the appellant’s approval. After

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acquiring the land, respondent No.1 undertook the construction

activities and the project in an advanced stage of synchronization as

early as on 10.07.2017. The same was notified to the appellant by

communication dated 10.07.2017 stating that the commissioning of the

project is in final stage and that the expected date of commissioning of

the project is 31.08.2017 which according to respondent No.1 is ahead

of the scheduled commissioning date i.e. 07.09.2017 in terms of the

PPA.

11. Even when respondent No.1 has undertaken the construction

activities in the changed location and informed the appellant that the

expected date of commissioning of the project is 31.08.2017, the

appellant terminated the contract by its order dated 11.08.2017. As

pointed out by respondent No.1 in its counter affidavit, on 06.06.2016,

respondent No.1 has got sanction of the term debt facility of Rs.267.37

crores from PTC India Financial Services Limited and has spent huge

amount in purchasing the land to an extent of 253 acres in Ashok Nagar

district. Respondent No.1 has also spent substantial amount in

development of the project in the changed location and reached an

advanced stage of commissioning the project by 31.08.2017. The delay

in commissioning the project appears to be due to unavoidable

circumstances like resistance faced at the allotted site in Rajgarh district

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and subsequent change of location of the project. These circumstances,

though not a Force Majeure event, time taken by respondent No.1 in

change of location and construction of the plant have to be kept in view

for counting the delay. Having invested huge amount in purchasing the

land and development of the project at Ashok Nagar district and when

the project is in the final stage of commissioning, the termination of the

contract is not fair.

12. The High Court observed that the delay in completing the project

was only for sixteen days. But according to the appellant, respondent

No.1 was granted time period of 210 days to complete the Conditions

Subsequent after which the penalty was leviable for the delay and if the

delay exceeded more than nine months, the appellant could terminate

the contract. According to appellant, the delay was not of sixteen days;

but the said delay of sixteen days is beyond the period of nine months

permissible under the PPA. In the light of our observations above, we

are not inclined to go into the merits of this contention. Suffice to note

that in cases of delay, Articles 2.5 and 2.6 provide for levy of penalty. As

observed by the High Court, since the contract permits imposition of

penalty, respondent No.1 is liable to pay penalty in terms of clause 2.5.1

of the PPA for the delay. But the action of the appellant in terminating

the contract is arbitrary and was rightly set aside by the High Court.

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13. While setting aside the termination of the contract, the High Court

maintained the action of invocation of bank guarantee in terms of clause

2.5.1 of the PPA. By order dated 22.09.2017, this Court has stayed the

order of the High Court subject to restitution by the appellant of the

amount covered by the bank guarantee which has been invoked which

is said to have been complied with by the appellant. In our view,

interest of justice would be met by directing respondent No.1 to pay

penalty amount of Rs.11,95,54,200/- imposed upon respondent No.1 by

the appellant.

14. In the result, the appeal is dismissed. The respondent No.1 shall

pay the penalty of Rs.11,95,54,200/- to the appellant within a period of

four weeks from the date of this judgment. No costs.

.…….……………………J.

[RANJAN GOGOI]

…………….……………J.

[R. BANUMATHI]

New Delhi;

April 05, 2018

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