Nabha Power Ltd. v. Punjab State Power Corporation Ltd.

A power generator and a State power utility disagreed over how coal cost is counted in a monthly energy charge formula. The formula is in their power purchase agreement (a promise or set of promises the parties accept). The Supreme Court read the formula as written. It allowed the cost of washing coal and transport up to the project site. It fixed the coal's calorific value at the project site. It also warned commercial courts against reading in implied terms (terms the parties did not write into the contract) (paras 53-59, 72-73).

Quick Revision

Read the full judgment: Supreme Court of India (sci.gov.in)

Parties

Nabha Power Limited (NPL) — appellant; a special purpose vehicle (a company set up only for one project). It was incorporated on 9.4.2007 for the Rajpura thermal power project (para 3).

Punjab State Power Corporation Limited (PSPCL) — first respondent; the successor of the Punjab State Electricity Board (PSEB) after PSEB was unbundled (para 4).

Punjab State Electricity Regulatory Commission (PSERC) — second respondent; the State Commission (para 4).

L&T Power Development Limited (L&T PDL) — the successful bidder, which bought 100 per cent of NPL's shares. It is not a party before the Court (para 7).

Procedural History

1. NPL filed Petition No.52 of 2014 before the State Commission under Section 86(1)(b) and (f) of the Electricity Act, 2003 (EA). It sought relief for wrongful deduction of parts of the monthly tariff (para 9).
2. 1.2.2016: the State Commission dismissed the petition (para 9).
3. NPL filed Appeal No.64 of 2016 before the Appellate Tribunal (AT) (para 9).
4. 14.12.2016: the AT rejected the appeal on most grounds. It allowed only the claim for capacity charges (para 9).
5. Various questions of law were framed in the appeal. They were finally restricted to five issues (para 9).
6. 7.6.2017: the Commission passed an order in remand proceedings. It rejected NPL's claim for interest because no such claim had been made earlier (para 32).
7. NPL appealed to the Supreme Court as Civil Appeal No.179 of 2017 (title page).

Facts

1. In 2009, PSEB held an international competitive bidding. Its aim was to choose a developer, through a tariff based bidding process, to supply power on a long-term basis. The power station was to be set up at Village Nalash, Rajpura, District Patiala, Punjab (para 1).
2. PSEB treated the project as a Case-2 bid project (Case-2, Scenario-4) under the Government of India's competitive bidding guidelines issued under Section 63 of the EA (para 1).
3. Tariff is normally determined under Section 62 of the EA. In a case like this, it is adopted under Section 63 after a transparent bidding process (para 2).
4. On 9.4.2007, PSEB incorporated Nabha Power Limited as a special purpose vehicle for the project. The successful bidder was to buy 100 per cent of NPL's shares and sign a 25-year Power Purchase Agreement (PPA) with PSEB (para 3).
5. PSPCL is the successor of PSEB after PSEB was unbundled under the Punjab Power Sector Reforms Transfer Scheme, 2010. The second respondent is PSERC (para 4).
6. On 10.6.2009, a Request for Qualification (RFQ) and a Request for Proposal (RFP) were issued for 1200 MW from the Rajpura Thermal Power Project (para 5).
7. The RFQ said four tasks were done: 1078 acres of land acquired, environmental clearance obtained, fuel arrangements tied up (LoA dated 11/18.12.2008) and water arrangements tied up (para 5).
8. The RFP said the coal would come from SECL, which had issued the LoA. It also said the Railways had given assurance to carry the coal from SECL over about 1600 km (para 5).
9. The bidding document was issued on 16.9.2009. Bidders raised queries and clarifications were issued (para 6).
10. One clarification said SECL would supply Grade F coal from the Korba/Raigarh field. The listed properties were as follows. GCV of 3900 to 4260 Kcal/kg. Ash 35% to 40%. Inherent moisture 5% to 6%. Volatile matter 24% to 32%. Fixed carbon 32% to 37%. Sulphur 0.05% (para 6).
11. Asked whether the coal would be washed or unwashed, PSPCL clarified that washing was to be arranged by the successful bidder (para 6).
12. On 17.09.2009, clarifications on the model PPA were issued. Asked whether fuel supply, transport and unloading costs were pass through, PSPCL said tariff payment would follow Schedule VII of the PPA (para 6).
13. L&T PDL was declared the successful bidder. A Letter of Intent was issued on 19.11.2009 (para 7).
14. On 18.1.2010, PSEB and L&T PDL signed a Share Purchase Agreement (SPA) transferring 100 per cent of NPL's shares. The PPA between PSEB and NPL was signed at the same time (para 7).
15. Disputes arose over the amounts payable to NPL, starting from the first invoice. Some issues were resolved (para 8).
16. PSPCL deducted amounts from the invoices on these accounts (para 8):
    • washing costs, including washery charges and the cost of coal lost in washing (yield loss);
    • using the mid-point of GCV of ROM coal on an equilibrated GCV (EGCV) basis to calculate energy charges;
    • road transportation cost at the plant-end and the mine-end;
    • liaising charges, transit and handling losses and third party coal testing charges;
    • non-payment of capacity charges from 20.02.2014 to 03.03.2014, when availability was declared on non-linkage (alternate) coal.
17. The Court noted that the dispute is about the interpretation of the PPA dated 18.1.2010 (para 10).

Issues Raised

The judgment does not number the issues. It states the dispute as one of pure interpretation of the PPA (para 10). The questions the Court decided are these.

1. Does the coal component of the energy charge formula include the cost of washing coal, and the coal lost in washing? This is the first dispute (paras 8, 13-16).
2. At which point is the Gross Calorific Value (GCV) of coal measured for the formula: the mine-end or the project-site? This is the second dispute (paras 17-18, 29).
3. Is NPL entitled to the cost of transporting coal from the mine to the washery, and by road from the nearest railway station to the project (paras 19, 30-31)?
4. Are NPL's other claims payable: transit and handling losses, third party testing charges and liaising charges (paras 20, 70)?
5. Is NPL entitled to interest on the disputed energy charges (paras 21, 32, 71)?

Arguments Contended

For the appellant (NPL), through Mr. Mukul Rohatgi, Senior Advocate:

• The bidding followed the Guidelines for Determination of Tariff by Bidding Process for Procurement of Power by Distribution Licensees, 2005. These have a statutory flavour under Section 63 of the EA (para 11).
• Paragraph 2.2 read with paragraph 3.2(i) of the Guidelines provides two routes, Case-1 and Case-2. The appellant quoted both paragraphs, including the project preparatory activities for Case-2 (para 11).
• A Case-2 project is a fuel specific procurement with a pre-identified site. PSPCL arranged the SECL fuel linkage and specified the site near Village Nalash (para 12).
• The bidder's tasks covered design, engineering, procurement, construction, testing, commissioning, financing, operation and maintenance (para 12).
• Case-2 has five scenarios with different bid parameters. This is Scenario 4. An all-inclusive fixed or capped energy charge was not a bid parameter (para 12).
• Energy charges were designed to vary with the actual cost and actual quality of coal. NPL took the risk only on the efficiency of the project, not on the cost or GCV of coal (para 12).
• On 16.9.2009, before the bid date, PSPCL disclosed the coal quality. The project was over 1,000 km from the SECL mine, and the coal had more than 34 per cent ash (para 13).
• The project therefore fell under the MoEF Notification of 1997, which makes washing of coal mandatory for power generation. PSPCL itself said the successful bidder must arrange washing (para 13).
• The coal and fuel in the PPA, including the energy charges formula, could refer only to washed coal. The actual cost in Article 1.2.3 of Schedule 7 must be the cost of washed coal (para 13).
• PSPCL took the contrary stand that washing is not part of the formula. NPL wanted two things included: the actual cost of unwashed coal bought from SECL, including coal lost in washing (about 20 per cent), and the washing charges (para 13).
• The clarification that the bidder must arrange washing did not mean the washing cost falls on the bidder. The formula expressly provides for actual cost incurred to be reimbursed (para 13).
• The operation cost in RFP clause 2.7.1.4(3) covers only operating and maintaining the power plant. It cannot cover any cost of coal, which is part of the energy charges (para 14).
• NPL invoked the principle of business efficacy (a term is implied only to make the transaction work as businessmen intended). It also invoked the maxim Reddendo Singula Singulis (reading each object with its own subject). Both were used to interpret the PPA and the Energy Charges Formula at Article 1.2.3 of Schedule 7 (para 15).
• The second dispute is linked to the first. PSPCL used the theoretical Equilibrated GCV (EGCV) of unwashed coal at the mine-end. NPL said the formula needs the GCV of washed coal on an As Received Basis (ARB) at the project-end (para 17).
• Coal's GCV changes greatly during 4 to 5 days of rail transport, as coal contains moisture. It is jointly sampled, tested and recorded by NPL and PSPCL when it reaches the site. This is obvious from the definition of PCVn (para 17).
• The joint sampling at the SECL mines is only of unwashed coal (para 17).
• FCOALn refers to the actual cost of transporting coal to the project and unloading it there. Transfer of title in unwashed coal, which cannot be used to generate electricity, does not mean delivery of coal to the project (para 18).
• On the same principle, NPL claimed transport cost for the first mile and the last mile. The first mile is unwashed coal from the mine to the washery (para 19).
• The last mile is carriage from the nearest railway station to the project. It arose because the Government of Punjab, for PSPCL, had not completed land acquisition (para 19).
• Transport must be reimbursed whatever the mode. In a Case-2 project the land risk is PSPCL's, not the bidder's (para 19).
• NPL also claimed other coal-linked charges: transit and handling charges, third party testing charges and liaising charges (para 20).
• The synopsis claimed interest on the disputed energy charges. It relied on Article 11.3.4 read with Article 11.6.8. These require interest or late payment surcharge on the disputed part of a bill. Interest runs from the date payment was originally due (para 21).
• A separate prayer for interest was not needed, and the benefit must follow if NPL succeeds. Being deprived of the use of money should be compensated with interest or damages (para 21).
• NPL filed documents with the synopsis showing joint sampling, in the presence of both sides, of coal received at the project site, including washed coal. These deny PSPCL's plea that verification was only at the mine (para 21).

For the first respondent (PSPCL), through Mr. V. Giri, Senior Advocate:

• Any claim about coal must be tested under Clause 1.2.3 of Schedule 7 of the PPA. It recognises only three identifiable components of coal for tariff: (a) purchase, (b) transportation and (c) unloading (para 22).
• A claim not falling squarely under one of these three heads cannot be included in the monthly energy charges (para 22).
• The clause does not cover every cost from procurement at the SECL mine to firing in the boiler. If it had, it would have said actual cost of coal used for generation (para 22).
• The cost of coal payable to SECL is given on an actual basis. It was clear that the coal supplied would not be washed coal, and washing was the appellant's duty (para 23).
• Washing could be done by building a washery or by outsourcing it. Other activities were also needed after purchase: sizing, crushing, sprinkling and moisturisation for stacking and storage, sorting, ash removal, removal of stones, demoisturisation and pulverisation (para 23).
• The formula provides only for the purchase price paid to SECL, not other spending by the appellant (para 23).
• Fuel supply agreement means the agreement between NPL and SECL. So the purchase in Clause 1.2.3 is the purchase under that agreement (para 24).
• The definition of Project Documents lists these (para 25):
  • construction contracts;
  • fuel supply agreements, including the fuel transportation agreement;
  • O&M contracts;
  • RfP and RfP project documents;
  • other agreements designated in writing.
• No separate agreement for washing appears in that list (para 26).
• The delivery point under the fuel supply agreement is the loading end of the colliery. Title and risk then pass to the appellant, so the purchase is complete (para 26).
• The burden to seek clarification was on the appellant. It asked only whether the coal would be washed or unwashed, and got a clear answer. It could have asked specifically about the cost of washed coal (para 27).
• RFP clause 2.7.1.4 required an all-inclusive quoted tariff with no exclusions. The bidder must factor in all costs, and the cost of secondary fuel, with no separate reimbursement. Washing and related activities are therefore part of the quoted tariff (para 27).
• There is a distinction between the purchase cost of fuel and the cost of usable fuel. Only the first is included (para 28).
• On GCV, the appellant's own case is that SECL overstates the GCV of the coal it supplies. Coal is jointly analysed and tested at delivery, so it is unclear how SECL supplies inferior coal but bills for superior coal. That is an issue for SECL (para 29).
• In the energy charge formula, GCV uses the coal delivered to the project. The cost of coal uses to and at the project. Two different expressions mean two different things (para 29).
• PSPCL relied on Life Corporation of India & Anr. v. Dharam Vir Anand, (1998) 7 SCC 348 for this reading (para 29).
• On road transport, the RFP, under the heading of activities to be completed before issue of RfP, envisaged only transport by Railways (para 30).
• The land for the Railways siding was to be acquired by the bidder, with the Government of Punjab facilitating. 1078 acres were already acquired. The RFP extract on railway sidings and rail lines is set out (para 31).
• The other linked claims from coal are denied. The interest claim was never made (para 32).
• The Commission's order dated 7.6.2017 in remand proceedings rejected the interest claim for that reason. The synopsis submission is an attempt to get over that defect (para 32).
• Interest arises only on bills that are not in dispute, under clause 11.3.4. That clause sets a Late Payment Surcharge of two per cent above the applicable SBAR per annum on delayed payment of a Monthly Bill (para 32).

Court's Reasoning

Opinion of Sanjay Kishan Kaul, J. (the only opinion; signed also by Rohinton Fali Nariman, J.)

1. Noted: The controversy is about interpreting a commercial contract between the parties. The Court first set out judicial pronouncements relevant to that task. (para 33)
2. Noted: In The Moorcock, Bowen L.J. dealt with an implied warranty by a jetty owner to a ship. He said an implied warranty rests on the presumed intention of the parties and on reason. (para 34)
3. Noted: In The Moorcock, the implication is drawn to give business efficacy to the transaction, as businessmen must have intended. It should not put all perils on one side. (para 34)
4. Noted: The significant issue in The Moorcock was the principle of business efficacy for transactions intended by businessmen. (para 35)
5. Noted: In Shirlaw v. Southern Foundries, MacKinnon L.J. cautioned that implying terms must be done with care. Courts are too often invited to do so on vague grounds. (para 36)
6. Noted: He gave the test of an officious bystander, an imaginary outsider who suggests an unwritten term. A term left unsaid is so obvious that the parties would testily answer with a common Oh, of course. (para 36)
7. Noted: This added a caution to the Moorcock test. The caution takes the form of the Officious Bystander Test (a test asking whether a term is so obvious that the parties would have said of course). (para 37)
8. Noted: In Reigate v. Union Manufacturing Co. (Ramsbottom) Ltd., Scrutton L.J. said the first step is to see what the parties expressed. A term is not implied because the Court thinks it reasonable. (para 38)
9. Noted: Reigate held that a term can be implied only if it is necessary in the business sense to give efficacy to the contract. The Court quoted the passage on both parties replying Of course. (para 38)
10. Noted: In Reigate the parties would have disagreed on the position if it had been raised, so no term was implied. The parties had expressed two conditions for ending the agreement. (para 38)
11. Noted: In Liverpool City Council v. Irwin, the Court of Appeal, through Lord Denning M.R., said courts imply a term when it is reasonable and necessary, or obvious to both parties. (para 39)
12. Noted: Lord Denning questioned those formulas. He listed cases where terms were implied by law and said the courts asked what was reasonable, not what the parties intended. (para 39)
13. Noted: He quoted Lord Wright, Lord Radcliffe and Lord Reid to say the court itself decides, as a matter of law, what is just and reasonable. (para 39)
14. Noted: The House of Lords in Liverpool City Council v. Irwin clarified that the touchstone is necessity, not mere reasonableness. Edmund-Davies L.J. preferred the majority in the Court of Appeal. (para 40)
15. Noted: The House of Lords quoted Roskill L.J. that a term must be necessary to make the contract work, as well as reasonable. It quoted Bowen L.J. on business efficacy from The Moorcock. (para 40)
16. Noted: The House of Lords said reasonableness has some part in deciding whether to imply a term. It cited Hamlyn & Co. v. Wood & Co. [1891] 2 Q.B. 488, where Lord Esher M.R. said the implication must be necessary. (para 40)
17. Noted: The House of Lords cited Reigate and In re Comptoir Commercial Anversois v. Power, Son and Co. [1920] 1 K.B. 868 for the same touchstone. (para 40)
18. Noted: Whether the test is necessity or reasonableness, the exercise is to find the presumed intention of the parties. The outcome on the facts would be the same. (para 40)
19. Noted: The Court called this a turning around from what was observed in The Moorcock. (para 41)
20. Noted: In Shell U.K. Ltd. v. Lostock Garage Ltd., Lord Denning said the House of Lords rejected his single category of implied terms. There are two broad categories. (para 42)
21. Noted: The first category covers common relationships such as seller and buyer, landlord and tenant. There the law itself sets the obligation, not the parties' intention. (para 42)
22. Noted: The second category covers cases not of common occurrence. A term is implied from the particular circumstances only if necessary and if it can be formulated with sufficient precision. (para 42)
23. Noted: In Shell v. Lostock Garage, no term was implied because it might be reasonable but not necessary, and could not be formulated with precision. (para 42)
24. Noted: In B.P. Refinery (Westernport) Proprietary Ltd. v. Shire of Hastings, the Privy Council laid down five conditions for implying a term. (para 43)
25. Noted: The five conditions are these (para 43):
    • it must be reasonable and equitable;
    • it must be necessary to give business efficacy to the contract, so no term is implied if the contract works without it;
    • it must be so obvious that it goes without saying;
    • it must be capable of clear expression;
    • it must not contradict any express term.
26. Noted: B.P. Refinery also quoted Bowen L.J. in The Moorcock, Scrutton L.J. in Reigate and MacKinnon L.J. in Shirlaw. It said the term must be reasonable and equitable because implication rests on presumed intention. (para 43)
27. Noted: In Investors Compensation Scheme Ltd. v. West Bromwich Building Society, Lord Hoffmann said modern courts read contracts by common sense principles. Most of the old baggage of legal interpretation was discarded. (para 44)
28. Noted: He summarised five principles. Interpretation finds the meaning a reasonable person with the background knowledge available to the parties would take. (para 44)
29. Noted: The background, called the matrix of fact, includes anything that would affect how the words are understood. Previous negotiations and declarations of subjective intent are excluded, except in an action for rectification. (para 44)
30. Noted: The meaning of a document is not the same as the meaning of its words. The background may show that the parties used the wrong words or syntax. He cited Mannai Investments Co. Ltd. v. Eagle Star Life Assurance Co. Ltd. (para 44)
31. Noted: Words get their natural and ordinary meaning, because people do not easily make linguistic mistakes. But courts need not attribute an intention the parties could not have had. (para 44)
32. Noted: Lord Diplock in Antaios Compania Naviera S.A. v. Salen Rederierna A.B. said that a semantic analysis flouting business commonsense must yield to it. (para 44)
33. Noted: In Attorney General of Belize v. Belize Telecom Ltd., Lord Hoffmann spoke on implied terms. The Court has no power to improve the instrument. It cannot add terms to make it fairer or more reasonable. (para 45)
34. Noted: Belize Telecom held that the meaning is what a reasonable person with the relevant background would take the instrument to mean. This objective meaning is called the intention of the parties. (para 45)
35. Noted: Implication arises when the instrument does not say what happens on some event. The usual inference is that nothing happens and the loss lies where it falls. (para 45)
36. Noted: Sometimes the only meaning consistent with the other provisions is that something is to happen. The implied term then only spells out what the instrument means. (para 45)
37. Noted: Belize Telecom called implication an exercise in construing the instrument as a whole. It quoted Trollope & Colls Ltd. v. North West Metropolitan Regional Hospital Board and Equitable Life Assurance Society v. Hyman. (para 45)
38. Noted: Tests like go without saying and necessary to give business efficacy are not different or additional tests. There is one question: what would the instrument, read as a whole against the background, reasonably be understood to mean? (para 45)
39. Noted: Belize Telecom warned against treating these formulations as having a life of their own. It dealt with the words business and necessary and with the officious bystander. (para 45)
40. Noted: It added that the need for an implied term need not be immediately obvious. The parties' actual reaction to the bystander is irrelevant. (para 45)
41. Noted: Belize Telecom treated the five B.P. Refinery conditions as different ways of expressing one central idea. It did not treat them as independent tests. (para 45)
42. Noted: In India, this Court's view appears in Dhanrajamal Gobindram v. Shamji Kalidas & Co. The effort of courts is to give commercial documents a meaning if possible. (para 46)
43. Noted: Dhanrajamal Gobindram relied on Hillas & Co. v. Arcos Ltd. and Adamastos Shipping Co. Ltd. v. Anglo-Saxon Petroleum Co. Ltd. Commercial agreements should be construed broadly and courts should not be astute to find defects. (para 46)
44. Noted: In Union of India v. D.N. Revri & Co., P.N. Bhagwati J. said a contract is a commercial document. It must be interpreted to give it efficacy, not to invalidate it. (para 47)
45. Noted: D.N. Revri held that a common sense approach is needed, not a narrow, pedantic and legalistic one. (para 47)
46. Noted: In Satya Jain v. Anis Ahmed Rushdie, Ranjan Gogoi J. explained the classic business efficacy test. It reads in a term to achieve the result the parties intended as prudent businessmen. (para 48)
47. Noted: Satya Jain held that only the most limited term should be implied, the bare minimum. If the contract makes business sense without it, courts will not imply it. (para 48)
48. Noted: Satya Jain cited United India Insurance Co. Ltd. v. Manubhai Dharmasinhbhai Gajera on the officious bystander and Trollope & Colls. It held the test applies only where the term could clearly have been intended at the time of contracting. (para 48)
49. Noted: The Court applied these principles to the contract. Parties in commerce act in a commercial sense. That is the basis of The Moorcock test. (para 49)
50. Noted: The law developed a five condition test for an implied term, which includes the business efficacy test and the Officious Bystander Test. It is set out in B.P. Refinery and found in Investors Compensation Scheme and Belize Telecom. (para 49)
51. Held: These principles do not let the Court substitute its own view of the parties' presumed understanding where terms are explicit. "The explicit terms of a contract are always the final word with regards to the intention of the parties." (para 49)
52. Held: A multi-clause contract must be read so that a view on one clause does no violence to another part. (para 49)
53. Noted: The pricing of coal is the crux of the problem. RFP clause 2.7.1.4(3) required an all inclusive tariff with no exclusions. (para 50)
54. Noted: The bidder had to take account of all costs. The clause also required the seller to ensure the inputs at the Project Site, with all costs reflected in the quoted tariff. (para 50)
55. Noted: The working of the contract is on the basis of Project Site. The project is a Case-2 project, which is fuel specific and has a pre-identified site. (para 50)
56. Noted: The contract has no fixed energy charge and no periodic revision of it. The formula was designed to be influenced by the actual cost of coal. (para 51)
57. Noted: One view is that coal cost is the purchase price from SECL at the mine-end, where property passes. The other view is that it is the cost of coal for the plant, as incurred at the project-end. (para 51)
58. Noted: Schedule 7 of the PPA provides for tariff payment and its computation. Monthly energy charges are in clause 1.2.3, which the Court extracted. (para 52)
59. Noted: The formula is Monthly Energy Charges = AEOm x MEPn, where MEPn = NHRn x FCOALn / PCVn. NHRn is the Net Heat Rate. (para 52)
60. Noted: FCOALn is the weighted average actual cost to the Seller of purchasing, transporting and unloading the coal most recently supplied to and at the Project. PCVn is the weighted average gross calorific value of coal most recently delivered to the Project. (para 52)
61. Held: FCOALn refers to the actual cost to the seller of three components only: (a) purchasing, (b) transporting and (c) unloading the coal. (para 53)
62. Held: PSPCL is right that other activities before use, such as sizing, crushing, sprinkling and moisturisation for storage, need not be reimbursed. Only three aspects relating to coal determine the coefficient. (para 53)
63. Noted: The three expressions are followed by the stipulation that coal is recently supplied to and at the project. (para 54)
64. Held: The word to refers to transporting and the word at refers to unloading. Any other construction fails to make grammatical sense. (para 54)
65. Held: All three of purchasing, transporting and unloading refer to the Project. So FCOALn is the weighted average actual cost NPL incurred in three steps. It buys the coal, transports it to the project site and unloads it there. (para 54)
66. Held: The property in coal passing to NPL against SECL on delivery at the mine-end does not change the definition of coal pricing for the tariff. (para 54)
67. Held: Mr. Rohatgi rightly relied on the maxim Reddendo Singula Singulis. The Court quoted the rule. A footnote names the source as Francis Bennion, Statutory Interpretation. (para 55)
68. Noted: The Court quoted G.P. Singh's Principles of Statutory Interpretation, which gave an Irish case and examples. The word devise applies to real property and bequeath to personal property. The word draw applies to a sword and load to a gun. (para 56)
69. Noted: The same rule appears in Koteswar Vittal Kamath v. K. Rangappa Balia & Co., which relied on Black's Interpretation of Laws. Antecedents and consequences are read distributively. (para 57)
70. Held: The Court read the provision distributively, applying each object to its appropriate subject. The relevant preposition is applied to the relevant activity. (para 58)
71. Held: Washing before receiving the coal at the project site is part of the pricing of coal and the cost of purchasing it. (para 59)
72. Why: NPL asked about coal quality and PSPCL answered that it would be washed coal. This matched the MoEF Notification, as the travel distance exceeded 1,000 km. (para 59)
73. Held: The reference to coal in the formula means only washed coal, not unwashed coal. (para 59)
74. Noted: NPL correctly showed that PSPCL's reading differs from the actual definition. The Court set out both. (para 60)
75. Noted: The actual definition covers the actual cost of purchasing, transporting and unloading the coal. PSPCL's version reads purchasing unwashed coal, transporting washed and unloading the washed coal. (para 60)
76. Held: The clarification that NPL must arrange washing did not mean NPL must bear the cost. Only the energy charge formula is referred to for coal price. (para 61)
77. Held: The operating cost in RFP clause 2.7.1.4(3) covers the activities mentioned there and the operation and maintenance of the plant. It does not alter the formula containing the cost of coal. (para 61)
78. Held: The principle of business efficacy also requires reading the Monthly Energy Charges formula as it would normally be understood. (para 61)
79. Held: PSPCL's plea about the fuel supply and fuel transportation agreements as project documents does not hold much water. They do not include washing. (para 62)
80. Why: Washed coal is a necessity for the project as a quality requirement. The formula envisages the quality of coal at the project site and all relevant costs up to that quality. (para 62)
81. Held: The mere term coal must mean washed coal, as no other type could be used. (para 62)
82. Noted: On transport cost, what PSPCL seeks to exclude is taking coal for washing and the last mile to the project. The last mile arose because the railway siding was not at the site for a period. (para 63)
83. Noted: NPL seeks to recover the actual road transport cost for that period. (para 63)
84. Held: These costs cannot be excluded, as transport costs to the project site must be compensated. The clause is not qualified by the method of transfer, whether rail or road. (para 64)
85. Why: Road transport was a matter of necessity, as the railway siding had not reached the site due to complications in land acquisition. (para 64)
86. Held: The RFP mentions a railway siding and rail lines as a project milestone. That does not make the Railways the only mode of transport when the siding was not made. (para 64)
87. Held: PSPCL's plea that operating the plant without a rail siding was NPL's business decision cannot be sustained. (para 65)
88. Why: The project was set up to obtain electricity for PSPCL. As a prudent decision for both, the plant had to operate at the earliest. (para 65)
89. Held: Complications in obtaining land by the State Government cannot mean the project stays on hold for two years, causing loss to everyone and lack of electricity. That plea defies the object of setting up the plant. (para 65)
90. Held: If SECL bills for a higher Calorific Value but supplies lower, that is a matter between NPL and SECL. PSPCL cannot be blamed. (para 66)
91. Held: It does not affect the formula, which provides for PCVn as the weighted average Gross Calorific Value delivered to the project. It must be determined at the project site on the same parameter. (para 66)
92. Held: The distinction between at the site and to the project in the definitions of FCOALn and PCVn does not help PSPCL. Delivery to the project could only mean at the site of the project, not the mine site. (para 67)
93. Noted: PSPCL was altering the basic concept of the formula by replacing wording relating to the project site with the mine site. (para 67)
94. Held: The point at which Calorific Value is measured is the project site. (para 68)
95. Why: PSPCL said there was no method to measure it at the project site. This is belied by NPL's sample reports for 2014, 2015, 2016 and 2017. They record joint sampling and testing and are signed by both sides. (para 68)
96. Noted: The Court found it surprising that PSPCL made a bald denial despite the position at the site. (para 68)
97. Held: The energy formula leads to only one conclusion: all costs of coal up to the project site are included. The Calorific Value is taken at the project site. (para 69)
98. Held: The formula contains only three elements. NPL cannot plead that any other element, such as transit and handling losses, third party testing charges or liaising charges, forms part of it. Those claims are rejected. (para 70)
99. Why: Such claims would be hit by RFP clause 2.7.1.4(3). Energy charges must be calculated only on the formula understood in a business sense. (para 70)
100. Noted: The interest claim was not laid at any stage. NPL relies on clause 11.3.4 read with clause 11.6.8. (para 71)
101. Held: The clause provides a late payment surcharge for delay in paying a monthly bill. Here there were no undisputed bills unpaid. There were serious disputes about interpreting the clauses. (para 71)
102. Held: This is not a fit case for compensation for deprivation as a measure of restitution. It was not claimed at any stage. The Court declined to grant the claim. (para 71)
103. Noted: The inclusion in the written synopsis seems to arise because the Tribunal did not favour the claim in remand proceedings, as no claim was laid. (para 71)
104. Noted: The Court added a word of caution. "It should certainly not be an endeavour of commercial courts to look to implied terms of contract." (para 72)
105. Noted: Today contracts are made with high technical expertise and legal advice on all sides. Parties can seek clarifications before signing. (para 72)
106. Held: Normally a contract should be read as it reads, by its express terms. Implied terms are needed only when the penta-test (five condition test) comes into play. "There has to be a strict necessity for it." (para 72)
107. Held: In this case the Court did not read in any implied term. It read the collection of clauses to find what the contract says. It expounded the formula by its natural grammatical contour, keeping the nature of the contract in mind. (para 72)

Provisions discussed

• Section 63, Electricity Act, 2003: the Appropriate Commission must adopt a tariff determined through a transparent bidding process under the Central Government's guidelines, despite Section 62 (paras 1-2).
• Section 62: the usual route for tariff determination; Section 63 applies in a bidding case like this one (para 2).
• Part 7 of the EA: contains the tariff provisions and tariff regulations (para 2).
• Section 86(1)(b) and (f): the provisions under which NPL filed Petition No.52 of 2014 before the State Commission (para 9).
• Guidelines paras 2.2 and 3.2(i): two competitive bidding routes, Case-1 and Case-2; for Case-2, project preparatory activities must be completed with the bid process (para 11).
• Sections 4, 6 and 17 of the Land Acquisition Act, 1894: mentioned inside the Guidelines on the timing of land acquisition notifications (para 11).
• MoEF Notification of 1997: makes washing of coal mandatory for power generation where coal has more than 34 per cent ash and travels over 1,000 km (paras 13, 59).
• Article 1.2.3 of Schedule 7 of the PPA: the Monthly Energy Charges formula, with FCOALn and PCVn (paras 13, 52-54).
• RFP clause 2.7.1.4(3) and (6): the quoted tariff is all inclusive; secondary fuel cost has no separate reimbursement (paras 14, 27, 50, 61, 70).
• Article 11.3.4 read with Article 11.6.8: late payment surcharge and interest on disputed bills (paras 21, 32, 71).
• Definitions of fuel supply agreement and Project Documents: relied on by PSPCL (paras 24-26, 62).

Authorities

• The Moorcock (1889) 14 PD 64: business efficacy; the Court's starting point for implied terms (paras 34-35, 40, 49).
• Shirlaw v. Southern Foundries (1926) Ltd. [1939] 2 KB 206: the officious bystander test (paras 36-37, 43, 49).
• Reigate v. Union Manufacturing Co. (Ramsbottom) Ltd. [1918] 1 KB 592: a term is implied only if necessary in the business sense (paras 38, 40, 43).
• Liverpool City Council v. Irwin [1976] QB 319 (Court of Appeal): Lord Denning's reasonableness view (para 39).
• Liverpool City Council v. Irwin [1976] 2 WLR 562 (House of Lords): the touchstone is necessity, not mere reasonableness (para 40).
• Miller v. Hancock: named in the House of Lords passage on the earlier case (para 40).
• Jones v. Just (1868) L.R. 3 Q.B. 197; Asley Industrial Trust Ltd. v. Grimley [1963] 1 W.L.R. 584; Young & Marten Ltd. v. McManus Childs Ltd. [1969] 1 A.C. 454; Hart v. Windsor (1843) 12 M. & W. 68; Collins v. Hopkins [1923] 2 K.B. 617; Readhead v. Midland Railway Co. (1869) L.R. 4 Q.B. 379; Francis v. Cockrell (1870) L.R. 5 Q.B. 501; Hancock v. B. W. Brazier (Anerley) Ltd. [1966] 1 W.L.R. 1317: cases of implied terms listed by Lord Denning in the Court of Appeal in Irwin (para 39).
• Davis Contractors Ltd. v. Fareham Urban District Council [1956] A.C. 696: cited within Lord Denning's passages on the fair and reasonable man (paras 39, 42).
• Hamlyn & Co. v. Wood & Co. [1891] 2 QB 488: necessary implication; quoted within Irwin (para 40).
• In re Comptoir Commercial Anversois v. Power, Son and Co. [1920] 1 KB 868: cited within Irwin for necessity (para 40).
• Shell U.K. Ltd. v. Lostock Garage Ltd. (1976) 1 WLR 1187: two categories of implied terms (para 42).
• Luxor (Eastbourne) Ltd. v. Cooper [1941] A.C. 108; Lister v. Romford Ice and Cold Storage Co. Ltd. [1957] A.C. 555; Greaves & Co. (Contractors) Ltd. v. Baynham Meikle & Partners [1975] 1 W.L.R. 1095; The Eugenia [1964] 2 Q.B. 226; the Esso case ([1966] 2 Q.B. 514, Mocatta J.): cited within Lord Denning's passage in Shell v. Lostock Garage (para 42).
• B.P. Refinery (Westernport) Proprietary Limited v. The President Councillors and Ratepayers of the Shire of Hastings [1977] UKPC 13: five conditions for an implied term (paras 43, 49).
• Investors Compensation Scheme Ltd. v. West Bromwich Building Society (1998) 1 All ER 98: principles of interpretation of contracts (paras 44, 49).
• Mannai Investments Co. Ltd. v. Eagle Star Life Assurance Co. Ltd. [1997] AC 749 and Antaios Compania Naviera S.A. v. Salen Rederierna A.B. [1985] AC 191: cited within Investors Compensation Scheme (para 44).
• Attorney General of Belize and Ors. v. Belize Telecom Ltd. and Anr. (2009) 1 WLR 1988: implication is construction of the instrument as a whole (paras 45, 49).
• Trollope & Colls Ltd. v. North West Metropolitan Regional Hospital Board [1973] 1 WLR 601 and Equitable Life Assurance Society v. Hyman [2002] 1 AC 408: cited within Belize Telecom (para 45).
• M/s. Dhanrajamal Gobindram v. M/s. Shamji Kalidas and Co. (1961) 3 SCR 1020: courts give commercial documents a meaning (para 46).
• Hillas & Co. v. Arcos Ltd. (1932) All ER 494 and Adamastos Shipping Co. Ltd. v. Anglo-Saxon Petroleum Co. Ltd. (1959) AC 133: cited within Dhanrajamal Gobindram (para 46).
• Union of India v. D.N. Revri & Co. (1976) 4 SCC 147: contract read with a common sense approach (para 47).
• Satya Jain (Dead) Through LRs. and Ors. v. Anis Ahmed Rushdie (Dead) Through LRs. and Ors. (2013) 8 SCC 131: business efficacy test applied only where the term was clearly intended (para 48).
• United India Insurance Co. Ltd. v. Manubhai Dharmasinhbhai Gajera (2008) 10 SCC 404: cited within Satya Jain (para 48).
• Life Corporation of India & Anr. v. Dharam Vir Anand (1998) 7 SCC 348: relied on by PSPCL for different expressions carrying different meanings. The Court held that to the project could only mean at the project site (paras 29, 67).
• Koteswar Vittal Kamath v. K. Rangappa Balia & Co. (1969) 1 SCC 255: the maxim Reddendo Singula Singulis (para 57).
• Also cited in footnotes: Francis Bennion, Statutory Interpretation (Butterworths, 1984, London), Part XXII (paras 55-56); M'Neill v. Crommelin (1858) 9 Ir CLR 61 (para 56); G.P. Singh, Principles of Statutory Interpretation (4th ed., 1988) (para 56); Osborne, Concise Law Dictionary; Wharton, Law Lexicon (14th ed.) (para 57).

Judgement

1. The appeal is partly allowed (para 73).
2. NPL is held entitled to the washing cost of coal (para 73).
3. NPL is held entitled to the cost of transporting coal from the mine site via washing to the project site. This includes the cost of road transportation for the period where it was necessary (para 73).
4. The Calorific Value of the coal is to be taken at the project site (para 73).
5. All other claims in the appeal are rejected (para 73).
6. The amount payable to NPL as a result must be remitted within three months from the date of the order (para 73).
7. If PSPCL fails to do so, the amount carries interest at 12 per cent per annum (simple interest) (para 73).
8. No costs (para 73).

Legal Principle / Ratio

A commercial contract must be read by its express terms. The parties' explicit terms are the final word. Take a pricing formula that names purchase, transport and unloading of coal to and at the Project. It covers all coal costs up to the project site, and the coal is washed coal (paras 49, 53-54, 59, 69).

Implied terms are a strict-necessity exception, tested by the five condition test (paras 49, 72).

Key holding: "the reading of the energy formula leads to only one conclusion that all costs of coal up to the point of the project site" are included (para 69).

Subsequent Treatment

Nabha Power v. PSPCL 2023

Full title: Nabha Power Limited v. Punjab State Power Corporation Limited, 2023 INSC 883. Supreme Court of India, Civil Appeal Nos. 2425-2426 of 2023, Sanjay Kishan Kaul, Sudhanshu Dhulia and Aravind Kumar, JJ., decided 9 October 2023 (Sanjay Kishan Kaul, J. writing).

• The Court records that it dealt with the matter in the 2017 judgment, cited as (2018) 11 SCC 508. It summarises the relief: washing cost, transport cost including road transport where necessary, GCV at the project site, and payment within three months (paras 1-2).
• PSPCL's application M.A. No.1562/2017 got no relief on 15.12.2017. The Court said it was for PSPCL to calculate and pay within four weeks (para 3).
• PSPCL's Review Petition Civil No.165/2018 was dismissed on 06.02.2018, as there was no error apparent on the face of the record (para 4).
• NPL filed a Contempt Petition because it was not paid. On 07.08.2019 and 03.09.2019, the Court said the judgment must be followed in letter and spirit, working the formula on actuals and deleting alien figures. It directed payment within eight weeks (paras 5-6).
• On 25.11.2019, PSPCL's M.A. No.2396-97/2019 was dismissed and twelve weeks were granted to pay (paras 7-8).
• On 09.03.2021, in the Second Contempt Petition, the Court held PSPCL guilty of contempt for not complying with the 05.10.2017 order. It gave two instalments on or before 31.03.2021 and 31.05.2021 (paras 11, 14).
• PSPCL then filed Petition No.49/2021 before the Regulatory Commission. It sought accounts of coal washing, coal quality reports, refund of Rs. 386.80 crores and late payment surcharge (para 12).
• The Commission's order of 06.04.2022 held that petition maintainable as a fresh dispute (para 13).
• Held: the liberty in the order of 09.03.2021 could not be used to seek refund of amounts paid under the Court's orders. A future dispute must relate to a period after 09.03.2021 (paras 20-22).
• Held: the 2017 judgment dealt exhaustively with the legal principles for interpreting a commercial contract. Those principles were then applied to the contract, and the pricing of coal was found to be the crux (para 23).
• Result: the appeals were allowed and the impugned order set aside. Costs were fixed at Rs.40.00 lakhs for NPL and Rs.25.00 lakhs for Talwandi Sabo Power Limited, payable within four weeks (paras 24-26).

GMR Warora Energy v. CERC

Full title: GMR Warora Energy Limited v. Central Electricity Regulatory Commission (CERC) & Ors. Supreme Court of India, Civil Appeal No.11095 of 2018 with connected appeals, B.R. Gavai and Vikram Nath, JJ., decided 20 April 2023.

• Within a passage it quoted in para 120, the Court quotes Maharashtra State Electricity Distribution Co. Ltd. v. Maharashtra Electricity Regulatory Commission and Others, (2022) 4 SCC 657, which cited Nabha Power Ltd. v. Punjab SPCL, (2018) 11 SCC 508, paras 45 and 72. That decision said courts cannot substitute their own view of the parties' presumed understanding of commercial terms if the terms are explicit (para 120).
• In para 121, the Court restates that proposition. It says the explicit terms of a contract are always the final word on the parties' intention (para 121).
• The appeals were dismissed with no costs (para 184).

Nabha Power v. TSPL 2025

Full title: Nabha Power Limited v. Punjab State Power Corporation Limited and Others, 2025 INSC 1002. Supreme Court of India, Civil Appeal Nos. 8694 and 8739 of 2017 (the second appeal is by Talwandi Sabo Power Limited), B.R. Gavai, CJI, and Augustine George Masih, J., decided 19 August 2025 (Augustine George Masih, J. writing).

• This is a related later decision on a different question. It concerns the same PPA dated 18.01.2010. It asks whether deemed export benefits and a Press Release amount to a Change in Law (a defined event that changes the cost of performing) (paras 1-2).
• Para 41 names the 2017 case in its text, with the footnote (2018) 11 SCC 508. It says the business efficacy jurisprudence was reiterated and outlined there (para 41).
• Noted: that account says the golden rule of contract interpretation gives words their ordinary and grammatical meaning. Even the business efficacy test cannot override an express term (para 41).
• Para 44 relies on an earlier three-Judge decision between the same parties. It is a different decision from the 2017 case (para 44).
• Held on the facts: no Change in Law occurred until the Notifications dated 11.12.2009 and 14.12.2009. The appeals were dismissed with no order as to costs (paras 44, 80-82).

Other later cases (not summarized)

• None recorded.

Critical Analysis

Analysis based on the judgment text.

• The Court treated the dispute as pure interpretation and said it read in no implied term. It still used the maxim Reddendo Singula Singulis and the principle of business efficacy to read the formula (paras 10, 55-61, 72).
• The judgment reviews the English and Indian implied term cases at length in paras 33-48. Its own holding on the formula did not depend on any implied term (paras 49, 72).
• The interest claim was refused because it had not been made at any stage and the bills were in dispute. The judgment leaves open whether interest would follow on undisputed bills (para 71).
• The judgment does not say what amount is payable. It leaves the calculation to the parties within three months (para 73).

Significance

• It gathers the main tests for implied terms: The Moorcock, the officious bystander and the five condition test (paras 34-45).
• It stresses that a contract is read as written and explicit terms are the final word (paras 49, 72).
• It reads a tariff formula against a Case-2 fuel specific procurement, so that all costs up to the project site are counted (paras 50-51, 69).
• It applies Reddendo Singula Singulis to read the words to and at separately (paras 54-58).
• It warns commercial courts not to look for implied terms in contracts drafted with expert help (para 72).

Exam-Important Points

• Rule: an implied term needs strict necessity (para 72). Trap: this Court read the clauses as written and added no implied term (para 72).
• Rule: five condition test (B.P. Refinery): reasonable and equitable, necessary for business efficacy, goes without saying, capable of clear expression, no contradiction of an express term (paras 43, 49).
• Rule: explicit terms are always the final word on the parties' intention (para 49).
• Rule: under Clause 1.2.3 of Schedule 7, FCOALn covers only purchase, transport and unloading. Trap: sizing, crushing and moisturisation of coal are not covered (para 53).
• Rule: to attaches to transporting and at to unloading, by Reddendo Singula Singulis (paras 54-58).
• Rule: coal in the formula means washed coal, so the washing cost is included (paras 59, 62).
• Rule: the Calorific Value is measured at the project site, not the mine (paras 66-69). Trap: SECL over-billing GCV is a matter between NPL and SECL (para 66).
• Rule: road transport cost is payable where the rail siding was not ready (para 64).
• Result: transit and handling losses, third party testing charges, liaising charges and interest were rejected (paras 70-71).
• Order: pay within 3 months, failing which 12 per cent simple interest; no costs (para 73).

Prepared from the full text of the judgment. Paragraph numbers follow the official Supreme Court judgment text; law reports may number the same paragraph differently.