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Clp India Pvt Ltd vs Gujarat Urja Vikas Nigam Ltd. on 6 May, 2020









1. The present judgment will dispose of two appeals preferred under Section 125
of the Electricity Act, 2003. One appeal (CA 2969/2010) has been preferred by the
Gujarat Urja Vikas Nigam Ltd. (hereafter,”Gujarat Urja”or “GUVN”) ;the second
(CA 2793/2010) has been preferred by CLP (India) Pvt. Ltd. (formerly, Gujarat
Torrent Energy Corporation Ltd; later, Gujarat Paguthan Energy Corporation Ltd, a
generating company, hereafter collectively “CLP”). Both appeals challenge a
common order of the Appellate Tribunal for Electricity(“APTEL” hereafter).

2. The erstwhile Gujarat Electricity Board (GEB) (now “Gujarat Urja”) entered
into a power purchase agreement (“PPA”)with CLP on 03.02.1994. In terms of the
Signature Not Verified

PPA, Gujarat Urja was under an obligation to purchase – and CLP was under
Digitally signed by
Date: 2020.05.06
16:03:10 IST

corresponding obligation to supply – 635 MW of electricity; the tenure of the
agreement was 20 years. In terms of Section 43(A) of the Electricity Supply Act,

1948, (hereafter”the Act”), a generating company may enter into a contract for the
sale of electricity with the Electricity Board and the tariff for the sale of electricity
shall be determined by the authority through the notification issued by the Central
Government. Prior the PPA in this case, the Central Government had issued a
notification under Section 43A, on 30.03.1992, specifying the controlling norms,
terms and conditions for determination of tariff for sale of electricity by the
generating company to the Electricity Boards. One of those conditions was the
provision for incentive to units using naphtha. On 17.01.1994, an amendment to the
notification dated 30.03.1992 was made providing for Note (1) stating that the
incentive for generation above the target availability of 68.49% for fixed cost
recovery was to be capped.

3. After the signing of the PPA between the parties, an amendment notification
dated 06.11.1995 was issued by the Central Government amending the notification
(dated 30.03.1992). By this, the Central Government provided that there would no
longer be any deemed Generation Incentive payable to any generating company on
available declaration of Naphtha as fuel. Based on this notification, the Electricity
Board sought to enforce the said notification claiming that this generating company
is not entitled to get the incentive for deemed generation. The Electricity Board also
sent a letter dated 18.04.1996 informing the CLP, that it proposed to amend the
Clause of the PPA to the effect that no deemed generation shall be
admissible beyond the level of generation in respect of Naphtha. CLP did not agree
to the proposal and by its reply dated 24.04.1996 stated that the notification of
06.11.1995 was inapplicable. Gujarat Urja did not agree to CLP’s position and
reiterated its earlier position about the change in the incentive terms. A meeting was
held in respect of various issues on 06.10.1997 during which several issues were
discussed and decisions taken, between the parties. However, the minutes of
meeting did not record any decision on the issue of incentive restricted in terms of
the notification dated 06.11.1995. There was some more correspondence and
meetings, which however, did not lead to any result in regard to both parties

accepting that the incentive was payable in terms of the notification of
November,1995. Ultimately, with effect from December 1997, CLP started billing
Gujarat Urja for the power supplied, including the incentive (ignoring the amending
notification); Gujarat Urja continued to pay deemed generation incentive from June,
1998 to 2000.

4. The Union Ministry of Power issued a notification (dated 09.06.1998) which
clarified profits on operating norms; several components such as station heat rate,
auxiliary consumption and secondary fuel consumption were eliminated and income
tax on incentives was no longer permitted (as a pass through in tariff). It was stated
that this was prospective in operation and would apply to power purchase
agreements which were not executed and delivered by the parties by 09.06.1998.
For a long time, incentive continued to be paid, ignoring the notification of
06.11.1995 by Gujarat Urja, to CLP. On 05.12.2003, CLP and Gujarat Urja entered
into a supplementary agreement, amending the PPA, to incorporate concessions
offered by CLP to reduce tariff. Pursuant to execution of the supplementary
agreement dated 05.12.2003, Gujarat Urja issued a letter to CLP stating that all the
outstanding issues stood fully and finally resolved. Gujarat Urja continued to pay
deemed generation incentive from 05.12.2003 to 23.02.2005. In February, 2005, a
high-level committee was constituted to examine the issue of recovery of excess
payouts made on the basis of deemed generation incentive. The receipt of the report,
of that committee, led Gujarat Urja to file an application for recovery of the
amounts from CLP (Petition No.874/2006 under Section 86(1)(f) of the Act, before
the Gujarat Electricity Regulatory Commission (“GERC”), claiming for recovery of
deemed generation incentive paid to CLP during the period from 1997-98 to 2005-


5. CLP resisted Gujarat Urja’s application, contending that principles of estoppel
precluded recovery; that in any event, parties had not agreed to change the terms of
the PPA and that the previous correspondence evidenced that the matter had been
closed, which meant that Gujarat Urja could not claim recovery of any so-called

excess amounts. The GERC, by its order held that Note 2 (introduced by the
notification of 06.11.1995) was applicable to the project and thus deemed
generation incentive is not payable to CLP. However, it permitted recovery of only
for a period of three years prior to the date of filing of the petition: the recovery for
the period prior to 14.09.2002 were held to be time-barred.

6. The second appeal, i.e. CA 2793/2010 by CLP Limited, questions the
impugned order of the APTEL which had upheld the rejection of its claim for
interest on deemed loan component.

7. The facts as far as this appeal is concerned are that a supplementary
agreement was executed between the parties on 05.12.2003. In terms of Article 4.6
of the Supplementary Agreement, original clause 7.5.14(a) of the PPA dated
03.02.1994 was substituted1. CLP stated that the amount, i.e `53.90 crores was in
fact due as a loan. If it was deemed as a loan, then interest was payable on the basis
of normative repayment of principal amount during the period of the loan, i.e. the
loan would not remain as a constant. In this regard, CLP had relied upon Clause 1.5
of the notification dated 30.03.19922. The PPA dated 03.02.1994 by Schedule VII
Clause 7.5.10 defined “Interest on Loan Capital” in the following terms:

"7.5.10: Interest on Loan Capital-shall mean the sum of all payment of
interest along with bank charges and all associated financing costs paid
to the bank annually on the outstanding loans paid by GTEC, converted,
as of the first day of the fortnight for the applicable fixed charge, into the
currencies in which it is payable employing exchange rates at bank’s
selling rate prevailing on that day obtained from the source mutually

1The substituted term, i.e. the new clause 7.5.14(a) reads as follows:

" The parties have agreed to recognize an amount of Rs.53.90 crores as”Own
Capital”deployed to meet with the Capital Cost and allowance of Payment of cost in the
form of “Cost of Own Capital”@ the rate of 14% per annum effective from 1.7.2003 and up
to 31.12.2009. No payment of any nature will accrue after the said date on the said

2Clause 1.5 reads as follows:

"1.5…………….(a) Interest on loan capital shall be computed on the outstanding loans,
including the schedule of repayment, as per the financial package approved by the


8. The CERC Tariff Regulations, 2001 which provided for “Interest on loan
capital”[clause 2.7(a)] and CERC Tariff Regulations,2004 were relied upon.

They are set out below:

"2.7(a)Interest on loan capital
Interest on loan capital shall be computed on the outstanding loans,
duly taking into account the schedule of repayment as per the financial
package approved by the Authority or an appropriate independent
agency, as the case may be.”

9. CERC Tariff Regulations, 2004 inter alia provides as under:

“20.Debt-Equity Ratio:(1) In case of alia generating stations, declared
under commercial operation on or after 1.4.2004,debt-equity ratio as on
the date of commercial operation shall be 70:30 for determination of tariff.
Where equity employed is more than 30%,the amount of equity for
determination of tariff shall be limited to 30% and the balance amount
shall be considered as the normative loan.

Provided that in case of a generating station where actual equity employed
is less than 30%, the actual debt and equity shall be considered for
determination of tariff.

(2) The debt and equity amount arrived at in accordance with clause (1)
shall be used for calculating interest on loan, return on equity, Advance
against Depreciation and Foreign Exchange Rate Variation.”

10. Gujarat Urja resisted this claim. After adjudication, the GERC rejected the
CLP’s argument on a plain reading of the clause, saying that for the first time in the
supplementary agreement, which stated that the agreement too recognized ` 53.9
crores as own Capital for which the cost of Own Capital @ 14% was to be a pass
through. The effective date for such recognition was from 01.07.2003 to 31.03.2009
and no amounts were due and payable as interest after that date. It was specifically
stated that this condition constituted the complete bargain to the extent it provided
for treatment of cost of Own Capital @ 14% per annum for a defined period. The
agreement had to be and was given prospective operation. This excluded any
liability on part of Gujarat Urja for the past period, i.e. December 1997. It was also

held that the claim made in 2010 was substantially barred to the extent it sought for
any amount of interest beyond a period of three years.

11. The CLP claimed on another issue, i.e. interest on ` 14.48 crores @ 16% per
annum from July 2000 to 30.06.2003 was payable. In terms of the supplementary
agreement, the condition specifically stated that GPEC (i.e. CLC) had further
deployed a sum of ` 14,48,40,831/- from its internal accrual to complete shortfall
and disbursal of loan by the lenders, which agreed to allow payment on this amount
@ 16% per annum from July 2000 to 30.06.2012. Gujarat Urja stated that this
interest was payable on reducing balance terms, not as bullet payment of interest.

12. The CERC ruled that it was quite clear that the parties had agreed to allow
interest at the said rate, @ 16% on the said sum, i.e. 14.48 crores. Therefore, Gujarat
Urja could not argue that interest was payable on the reducing balance method and
that the payment of interest on a bullet repayment method was not permissible. The
Commission, i.e. GERC noted that the statutory notification, i.e. clause 1.5 of the
notification dated 30.03.1992 did not prohibit calculation of interest on bullet
repayment as regards clause 7.5.10 in Schedule VII of the PPA dated 03.02.1994,
the subject matter or its content was deemed loan. On this second aspect, therefore,
the terms of the contract contained in the supplementary agreement directing 16%
per annum interest on `14.48 crores is bullet repayment, was upheld.

13. The CLP Limited was aggrieved by that portion of GERC’s order which
rejected its claim on the deemed loan component prior to the period 2003. It
appealed to the APTEL (Appeal No.44/2009). The APTEL concurred with the
decision of the GERC and held that clause 7.5.14(a) of the supplementary
agreement did not oblige Gujarat Urja to refund interest paid upon the deemed loan
component upon the equity portion treated as deemed loan, i.e. ` 53.9 crores for any
period prior to 01.07.2003. Therefore, CLP’s appeal was rejected. It, therefore, has
appealed to this Court on the said findings.

Analysis and Findings

14. Section 43A of the Electricity (Supply) Act, 1948 (hereafter “the Supply
Act”) reads as follows:

"43A. Terms, conditions and tariff for sale of electricity by Generating

(1) A Generating Company may enter into a contract for the sale of
electricity generated by it-

(a) with the Board constituted for the State or any of the States in which
a generating station owned or operated by the company is located;
(b) with the Board constituted for any other State in which it is carrying
on its activities in pursuance of sub-section(3) of section 15A; and

(c) with any other person with consent of the competent government or

(2) The tariff for the sale of electricity by a Generating Company to the
Board shall be determined in accordance with the norms regarding
operation and the Plant Load Factor as may be laid down by the
Authority and in accordance with the rates of depreciation and
reasonable return and such other factors as may be determined, from
time to time, by the Central Government, by notification in the Official

Provided that the terms, conditions and tariff for such sale shall, in
respect of a Generating Company, wholly or partly owned by the Central
Government, be such as may be determined by the Central Government
and in respect of a Generating Company wholly or partly owned by one
or more State Governments be such as may be determined, from time to
time, by the government or governments concerned.”

15. At the outset, it is noticeable that on the issue, whether amounts paid to CLP,
for the period 1998 to 2005 onwards, were in excess of what was actually payable
by Gujarat Urja, the findings of GERC and the APTEL are concurrent. This court
does not discern any unreasonableness or facial omission of material factors, to
warrant appellate review. Nevertheless, the court would proceed to deal with the
submissions made on this aspect. Gujarat Urja contends that the concurrent
findings, to the extent they limit the refund to a period up-to 2002 are erroneous,
because in effect CLP has been unjustly enriched. Learned senior counsel for
Gujarat Urja, Mr. C.A. Sundaram, argued that once the GERC found, on a plain

reading and interpretation of the tariff order of 1992 – as amended by the
notification dated 06.11.1995, that incentive could not be paid in the same manner
as was contemplated by the parties, when they entered into the PPA (on
03.02.1994), as a matter of law, the amounts paid were excess; consequently, both in
law as well as in equity, CLP was under an obligation to refund the entire excess,
from the time it was not entitled to those amounts.

16. On the question of limitation, learned senior counsel argued that the APTEL
erred in law, in not following the decisions of this court in Hari Shankar Singhania
v. Gaur Hari Singhania3 and Sri Ram Mills Ltd.v. Utility Premises Ltd. 4 in
considering that the issue was not time-barred. Counsel submitted that the question
was engaging the attention of the parties and CLP was aware of the fact that the
Central Electricity Authority and the Central Government had taken decisions on
this aspect. Moreover, as a matter of law, by reason of the amendment, to the
notification (dated 06.11.1995), CLP could not have legitimately claimed more tariff
based on the incentive policy that was no longer applicable. Therefore, the amounts
paid to the extent they were not in conformity with the said amendment, had to be
refunded in entirety.

17. On behalf of CLP it was urged, by Mr. Sajan Poovayya, learned senior
counsel, that both the authorities below erred in their interpretation of the terms of
the PPA, the notification of 30.03.1992 and the amendment of 06.11.1995. It was
argued that CLP’s generation station is gas-based and not a Naphtha based station.
The notification dated 06.11.1995 applied only to 100% Naphtha based stations and
not to gas based stations like that of CLP, where Naphtha was used as a secondary
fuel when the Gas was not available. The expression “Naphtha based station” used
in the notification is a term of art; it refers merely to the physical characteristic of
the plant and not to the nature of fuel to be used. It was further contended that the
amending notification of 06.11.1995 itself makes a distinction between gas based
stations and naphtha based stations. CLP’s plant, in terms of PPA is a gas based, not
3 (2006) 4 SCC 658
4 (2007) 4 SCC 599

Naphtha based. Therefore, the notification dated 06.11.1995 would not apply to its
plant. Also, urged counsel, since the PPA was entered into on 03.02.1994, the
amendment notification dated 06.11.1995 would not apply to the pre-existing PPA,
since it has a prospective effect. It was lastly submitted that Clause 6.5 of the PPA
dated 03.02.1994 regarding change of law is clarificatory in nature. It deals only
with the earlier part to protect the interest of the GPEC for change in law. “The
change in law” referred to in Clause 6.5 covers amendment to notification dated
30.03.1992. Therefore, the financial difficulties resulting from the amendment
notification dated 06.11.1995 are to be compensated in favour of the CLP.

18. It was argued that Note(2) of the amended notification dated 06.11.1995
unambiguously states that it applies only to Naphtha based stations for whom
generation incentive was inapplicable. Therefore, the gas based units like CLP were
clearly not covered by Note(2) since they used naphtha only as an alternative fuel or
substitute fuel. Therefore, the findings given by the GERC and APTEL to the effect
that Naphtha based station include those that are capable of firing Naphtha also as a
fuel, and not mean those which are capable of firing only Naphtha, is wrong.

19. The submissions of parties are with respect to two notifications dated
30.03.1992 and 06.11.1995. These Notifications were under Section 43(A) of the
Supply Act. Concededly, these notifications are statutory and are binding on the
parties. Any PPA between a generating company and the purchaser of electricity is
subject to such statutory notifications; parties by agreement cannot override
statutory provisions, or such notifications, as far as they relate to matters of tariff.

20. Therefore, the rights and obligations of the parties under the PPA have to be
read subject to the statutory provisions. The provisions of the PPA, if they are
contrary to the statutory provisions, cannot be given effect to. In terms of the PPA of
03.02.1994, “fuel” is defined as follows:

" Fuel natural gas and/or any liquid fuel selected by Gujarat Torrant
Electricity Company (GTEC) (now CLP) for use in power station for
generating electricity”


‘fuel management’ is defined as follows:

"Fuel Management:-The power station of the GTEC is designed to use
natural gas and liquid fuel as fuel. GTEC shall decide selection and use
and proportion gas and other fuel in best economic way depending on
the situation from time to time.”

21. The kind of alternative fuel and its long-term purchase contract could be
jointly decided by CLP and Gujarat Urja. The cost of the alternate fuel when used
by CLP shall be taken into account for calculation of variable charges as defined in
Schedule VII (of the PPA). Clause 7.1 and Clause 7.4 of Schedule VII to the PPA
are relevant.5 Under the former, Gujarat Urja had to purchase power from CLP on
the basis of the notification of 30.03.1992 of the Central Government. It further
provided that the tariff for the first 6000 Kwh/kw (i.e 68.5% PLF – i.e. plant load
factor) of net availability in any year was to be the sum of (a) the fixed charge and

(b) the variable charge (i.e those terms defined by clauses 7.2 and 7.3). For all
excess energy of actual and deemed generation in excess of 68.5%, the tariff
payable was to be the sum of (a) incentive and (b) variable charge. Clause 7.4
provided for incentive, which was to be @ 0.575% for every 1% increase in the
generation above the normative level of 6000 hours per kWH/KW (i.e 68.5% PLF)
in accordance with the notification S.O. 251(E), dated 30.03.1992 (as amended on

5 For convenience,they are set out as follows:

" 7.1 Tariff GEB shall purchase power from GTEC, generally on the basis of GOI
notification No.SO 251(E) dtd. 30-3-1992. The Tariff for the first 6,000 kWH/KW (i.e. 68.5 PLF)
of Net Availability in any year during the terms of this Agreement shall be the sum of ( a)the
Fixed Charge and (b) the Variable Charge. For all the energy of actual and deemed generation in
excess of 68.4 % PLF in any Year ,the Tariff payable by GEB shall be the sum of (a) the Incentive
described below and (b) the Variable Charge. Any tax or impost on or pertaining to sale of energy
or capacity shall be payable by GEB over and above the Tariff.

… …… …… ……

7.4 Incentive The incentive referred to in 7.1 above with respect to any fortnight shall be
in the form of additional return on equity at the rate of 0.575% for every 1% increase in the
generation above the normative level of 6000 hours per kWH/KW(i.e 68.5% PLF) in accordance
with the amendment dated 17.1.94 to the said notification No.SO 251(E).”


22. The argument of CLP that its unit was essentially gas-based and that the
definition of naphtha-based unit meant only that unit which depended entirely on
naphtha as a fuel, or that which used naphtha at least to the extent of 50%, in our
opinion is not correct.

23. The judgment of this court in India Thermal Power Ltd. vs. State of M.P.
Ors.6 is an authority for the proposition that parties can agree to terms as they deem
appropriate, for generation and sale of electricity under Section 43A except that the
tariff is to be in accordance with the provision contained in Section 43A. The
decision in Binani Zinc Ltd. v. Kerala State Electricity Board7; Tata Power
Company Ltd. vs. Adani Electricity Mumbai Ltd. and Ors. 8 too have taken a similar

24. Clause 6.5 of the PPA of 03.02.1994 dealt with a situation concerning
change of law. It also stated that any amendment in the Central Government’s
notification dated 30.03.1992 would be taken into account for tariff calculation. 9
6 (2000) 3 SCC 379, where it was held pertinently that:

" Section 43 empowers Electricity Board to enter into arrangement for purchase of
electricity on such terms as may be agreed. Section 43-A(1) provides that a generating company
may enter into a contract for the sale of electricity generated by it with Electricity Board. As
regards the determination of tariff for the sale of electricity by a generating company to the
Board, Section 43(1)(2) provides that the tariff shall be determined in accordance with the norms
regarding operation and plant load factor as may be laid down by the authority and in
accordance with the rates of depreciation and reasonable return and such other factors as may be
determined from time to time by the Central Government by a notification in the official gazette.
These provision clearly indicate that the agreement can be on such terms as may be agreed by the
parties except that the tariff is to be determined in accordance with the provision contained in
Section 43-A(2)and notifications issued thereunder. Merely because a contract is entered into in
exercise of an enacting power conferred by a statute that by itself cannot render the contract a
statutory contract. If entering into a contract containing prescribed terms and conditions is a
must under the statute than that contract becomes a statutory contract. If a contract incorporate
certain terms and conditions in it which are statutory then the said contract to that extent is
statutory. A contract may contain certain other terms and conditions which may not be of a
statutory character and which have been incorporated therein as a result of a mutual agreement
between the parties. Therefore, the PPAs can be regarded as statutory only to the extent that they
contain provisions regarding determination of tariff and other statutory requirements of Section

7 (2009) 11 SCC 244
8 2019(7) SCALE 297
9 The stipulation reads as follows:

" 6.5 Change in Law: In the event that as a result of any laws or regulations of any
Governmental Authority or any national ,regional or municipal authority thereof coming into

The relevant part of the notification of 30.03.1992 which dealt with charges
recoverable by the generating company was clause 1.6.10 That condition was
amended by the notification dated 06.11.1995 which clearly stated, by Note(2) that:

"Note:2-For Naptha based thermal plants, the extent of backing down,
as ordered by Regional Electricity Boards, beyond plant Load Factor of
6000 kwh/kw/year, shall not be reckoned as generation achieved for
incentive purpose.”

25. There is no dispute that the PPA which the parties entered into specifically
referred to the notification of 30.03.1992 and further went on to state that for the
first Kwh/KW, a plant load factor of 68.5% fixed charges and variable charges were
deployed. For generation achieved over and above this by the concerned unit – CLP,
an incentive @ 5.75% for every 1% increase over and above the fixed and variable
charge payable was agreed to. Significantly, the fixed and variable charges are in
consonance with the statutory notification of 30.03.1992 (which was also later
amended on 17.01.1994). This much is clear from a plain reading of clause 7.1 of
the Schedule VII to the PPA itself. In view of the fact that the notification amended
on 06.11.1995 was a statutory one, there cannot be any doubt that it was binding

effect after the date hereof, and in force at the date hereof being amended, modified or repealed,
the interest of GTEC in the Project and/or GTEC’s projected economic return net of tax (or other
imposition) on its investment in the Project is materially reduced prejudiced or otherwise
adversely affected (including without limitation, any restriction on the ability to convert Rupees
or remit funds in foreign currencies outside of India) then the parties hereto shall meet and
endeavour to agree on amendments to this Agreement to the effect that all of the increased cost or
lost return on investment incurred by GTEC that would result from complying with or being
subject to any such change in law shall be passed through to GEB under GTEC Tariff. Any
amendment in Government of India Notification No.S.O.251(E)dated 30.3.92 shall be taken into
account for Tariff calculation.”

10 The said condition in the notification is as follows:

" 1.6 Full fixed charges shall be recoverable at generation level of 5500-6000
hours/KW/year: Payment of fixed charges below the level of 5500 KWh/KW/year shall be on pro-
rata basis. There shall not be any payment of fixed charges for generation levels above 6000
hours./KW/year: However generation above 6000 hours./KW/Year shall be at negotiated rates
between the Generating companies and the Board, which shall not include fixed cost element.
While computing the level of generation, the extent of backing down, as ordered by the Regional
Electricity Board shall be reckoned as generation achieved. The payment of fixed charges shall be
on monthly basis, proportionate to the electricity drawn by the respective Boards. Necessary
adjustment based on actual sales and deemed sales shall be made at the end of each year:”


upon the parties. Therefore, the earlier notification which left it free to the parties to
negotiate on various aspects, including on the incentive payable, stood amended by
Note 2, which was added to clause 1.6 of the tariff. The effect of this statutory
incorporation by way of amendment was that incentive no longer became payable.
The arguments by the CLP, in the opinion of the Court, that the parties were bound
only by the terms of the agreement and that the amendment notification being
prospective, could not have altered the terms of the tariff, especially the incentive
payable, are insubstantial and have no force. The concurrent findings on this aspect,
therefore, are sound and do not call for interference. Likewise, the change of law
provision (Clause 6.5 of the PPA) clearly contemplated that any amendment to the
prevailing tariff notification (dated 30.03.1992) would bind the parties. Since Note
(2) was an amendment, which dealt with the issue of incentive, it cannot now be
said that it was inapplicable. The findings of the lower authorities, therefore, are
correct; no interference is called for.

26. The next question is whether the GERC and APTEL fell into error in
granting restricted refund calculable for the 3 year period prior to Gujarat Urja’s
application. The concurred findings on this aspect, in the opinion of this court, are
reasonable. There is merit in CPL’s submission that the earliest point in time, when
the cause of action arose, was in May,1996, when Gujarat Urja rejected its
contention that incentive was payable in terms of the PPA, notwithstanding the
notification of 06.11.1995. Despite this stated position, meetings continued to be
held and, what is more, incentive amounts, were paid to CLP. No doubt, no
document conclusively stated that CLP’s claim was accepted. We do not find any
merit in the submission of Gujarat Urja that the issue was kept alive, due to a series
of communications. In this regard, APTEL’s findings about inapplicability of
Section 18 of the Limitation Act, are correct. There was no admission on the part of
CLP, at least of the kind, that extended the time for preferring an application for
recovery of excess payments. It has been consistently ruled by this court that

repeated letters, or exchange of communications, do not extend the period of
limitation, provided by law.11

27. The third, and last issue, is with respect to payment of interest on deemed
equity. Clause 1.5 of the 30.03.1992 notification provided for interest on loan, as a
component of tariff; it stipulated that interest (on outstanding loan) shall be
computed as per financial package approved by the Authority (CEA). The PPA of
03.02.1994 (Schedule VII) clause 7.5.10 defined interest on loan capital as " the
sum of all payments of interest along with bank charges and all associated
financing costs paid to the bank annually on the outstanding loans paid by GTEC.
…” The Central Commission’s order of 21.02.2000 led to a stipulation in the tariff
regulations of 2001. Eventually, the Tariff Regulations of 2004 was brought into
force; it provided for a debt ratio of 70:30 for determination of tariff. It also
provided that:

" Where equity employed is more than 30%, the amount of equity for
determination of tariff shall be limited to 30% and the balance amount
shall be considered as the normative loan”

28. The debt-equity ratio in this case, was disturbed; accordingly ` 53.9 crores
was treated as “deemed” or normative loan, for which the parties had to agree the
rate of interest payable, in accordance with the tariff notification. It was in the light
of these developments that the supplementary agreement was entered into. That
amended the existing PPA, to the following effect12:

"The parties have agreed to recognize an amount of Rs.53.90 crores as
“Own Capital” deployed to meet with the Capital Cost and allowance of
Payment of cost in the form of “Cost of Own Capital”@ the rate of
14%per annum effective from 1.7.2003 and up to 31.12.2009. No
payment of any nature will accrue after the said date on the said

11 S.S.Rathore v State of Madhya Pradesh 1989 (4) SCC 582; Union of India v Har Dayal 2010
(1) SCC 394; Schlumberger Asia Services Ltd vs. Oil and Natural Gas Corporation Ltd. 2013
(7) SCC 562.

12 f.n.1 ibid.


29. It is thus apparent, that the parties did not harbor any doubt about the period
for which the specified interest was payable on such deemed loan. The rate of
interest was fixed; likewise, the date from which payment obligations were to arise,
too were known. Also, the date upto which the interest on such deemed loan
payments were to be made, was known and fixed. In these circumstances, CLP’s
claim that the payment of interest for a prior period was outstanding, and constituted
Gujarat Urja’s liability, is insubstantial. In a recent judgment 13 a similar issue had
arisen. The court quoted from the decision in National Thermal Power Corporation
Ltd. v. Madhya Pradesh State Electricity Board14 where another previous decision
was cited with approval on the issue that the express provision for something, in an
agreement, meant that other similar matters stood excluded.15

30. A somewhat analogous issue, i.e. interest on normative deemed loan (i.e.
deemed loan), in the context of changed debt-equity ratios, under tariff regimes was
considered in a decision of this court16, where it was held that:

"20. In the order of the Appellate Tribunal dated 23.11.2007 the
matter came to be dealt with under the heading ‘debt equity ratio’.The
Tribunal went on to accept the case of the Appellant in respect of all old
projects of DVC and normative debt equity of 50:50 was assigned,
commissioned prior to 1992. In respect of recent projects such as Mejina,
13 Uttar Haryana Bijli Vitran Nigam Ltd.and Ors. vs. Adani Power Ltd. and Ors. 2019 (5) SCC
14 (2011)15 SCC 580
15 The relevant portions of this court’s observations, in Uttar Haryana (f.n.13 ibid) are as

"25. In this connection, it is material to note that the claim in South Eastern Coalfields
(2003) 8 SCC 6487 was essentially covered Under Section 61 of the Sale of Goods
Act,1930, and the interest by way of damages was payable as per this statutory provision itself.

The liability had been crystallised and the interest had become payable because of the failure to
pay the amount as per the liability. Besides, there was nothing in the agreement between the
parties to the contrary on the issue of grant of interest. In the present matter, we have the second
proviso to Regulation 79(2) of the 1999 Regulations which permitted the generating company to
continue to charge the existing tariff for such period as may be specified in the notification by the
Commission, and the notifications permitted continuation of the existing tariff as on 31-3-2001,
until the final tariff was determined. There was no provision for payment of interest therein. The
very fact that interest came to be provided subsequently by a notification under the Regulations of
2004 is also indicative of a contrary situation in the present matter viz. that interest was not
payable earlier.”

16 Damodar Valley Corporation vs. Central Electricity Regulatory Commission Ors. 2018
(15) SCALE 451.


it was assigned debt equity ratio of 70:30 on capital structure as
specified in the Regulations. This finding has become final. It was
contended on behalf of the Appellant that equity has been the primary
source of capital. Thereafter,in paragraph A-10, it was found by the
Appellate Tribunal that owners take upon themselves business related
risk and are entitled to interest on capital investment,but the return is to
be governed by the scheme of determination of tariff for the supply of
electricity as mandated by the law in place. The Appellate Tribunal
further proceeds to hold that the scheme provides for assured Return on
Equity (ROE) which is at the rate of 14% on the equity employed for the
purpose of supplying electricity. The scheme does not permit return on
investment made on projects other than for supply of electricity to be
recovered from supply of electricity. The Tribunal went on to hold that
the DVC Act does not recognise capital as borrowings and there is no
reference about repayment of such capital to the participating
Governments. The Appellate Tribunal proceeds to hold that the capital
infused by participating Governments is in the nature of equity capital
and for the determination of tariff, the same would be eligible for return
on equity but the Appellate Tribunal does not end there. It clearly
provides that the return on equity is as may be permitted by the tariff
Regulation of 2004. It is thereafter that the Appellate Tribunal in para 15
proceeded to hold that the DVC Act provides for interest on capital which
is contributed by the participating Governments. The accrued interest
due to the Governments apparently has been allowed to be retained by
the Appellant. The same however came to be ploughed back into the
capital with the tacit consent of the participating Governments.
Thereafter, it is stated that this has to be provided to the DVC as per the
provisions of Section 38 of the DVC Act. It is thereafter paragraph A-16
which we have already extracted, the Tribunal proceeded to observe that
under the DVC Act if there is any deficit in the capital contributed by the
participating Governments,it is to be made good by taking loan on behalf
of the participating Governments. The said debt would attract interest.
The average interest rate of the repayment payable is to be applied on a
50:50 normative debt capital. This means that out of the aggregate equity
including reserves, equity considering the normative debt ratio of 50:50
would be eligible for return on equity as specified in the Regulations and
the excess of equity,if any, over the equity earning ratio of 14% is to be
considered as interest bearing debt. In the example which has been given
it is shown that if the debt equity ratio is 40:60, return on equity at 14%
will be available on 50% equity whereas interest would be available at
10% portion of equity and 40% loan which were reduced by repayments.


21. On the basis of the remand, the Commission has worked out the
debt equity ratio as directed by the Appellate Tribunal. It has further
provided return on equity at the rate of 14% on the equity portion,
namely 50%. In respect of the debt portion, interest has been calculated
no doubt after deducting depreciation, the legality of which is the subject
matter of the other contention which we will deal with separately. It is
quite clear to us that Appellant has already been given return on equity
in terms of the tariff Regulation in respect of capital on the basis of debt
equity ratio which has been fixed by the Appellate Tribunal on a ratio
which has become final between the parties.

22. Though a perusal of para A-9 of order dated 23.11.2007 may
appear to show that equity has been found to be the main source of
capital, a perusal of paragraph A-10,A-16 and more importantly E-13
would show that capital Under Section 38 of the DVC Act has been
understood as the value of the operating assets when they were first put
to commercial use. Capital is also understood not as equity alone but it
has been understood both as loan and equity. The ratio between loan and
equity is also fixed in respect of the old projects at 50:50 and under the
new projects it is at 70:30.It is further clear from paragraph E-13 of the
order of the Appellate Tribunal dated 23.11.2007 that the appellate
Tribunal contemplated that the equity component would remain static
and it would earn the rate of return as provided in the tariff Regulation.
As far as the loan component is concerned, it would get reduced on
account of repayments. Therefore, the recovery as contemplated under
the Regulations was found to be in two forms, namely, either as return on
equity in respect of the equity portion and as interest on the loan

31. In the present case, the clear agreement between the parties was that interest
on the sum of `53.90 crores was payable for the specified period 01.07.2003 to
31.12.2009.Therefore, CLP’s claim that any amount was payable, for any period
prior to 01.07.2003, was not tenable. Had CLP wished so, nothing prevented it to
claim for it during negotiations and have it included as a term of the contract. Once
having settled for a specified sum, on an amount (`53.90 crores) that was only
fictionally a loan – and treated as such, for purpose of fixing interest payable,
considering the equity infused, in excess of the tariff regulations, the absence of any
like item, such as interest for prior period, precludes a claim. But it was really part
of the equity component. Therefore, interest was per se not payable, but could be

paid in terms of the tariff notification or the agreement. No claim on any other legal
or equitable considerations could have been made. The findings of the lower
authorities are therefore, sound and reasonable.

32. In view of the foregoing analysis and conclusions, both appeals have to fail.
They are accordingly dismissed, without order on costs.






New Delhi;

May 6, 2020

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