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.
29
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
30
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.
29
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
30
