Supreme Court clarifies calculation of Scheduled Commissioning Date in Solar Power Agreements: Bangalore Electricity Supply Company Limited vs. E.S. Solar Power Pvt. Ltd. (2021) INSC 284 (3 May 2021)

Introduction

Date of the Judgment: 3 May 2021
Citation: (2021) INSC 284
Judges: L. Nageswara Rao, J. and Vineet Saran, J.

When does a solar power project officially start? The Supreme Court of India recently addressed a dispute over the calculation of the Scheduled Commissioning Date (SCOD) in a power purchase agreement. This case clarifies whether the date of approval of the agreement should be included or excluded when calculating the commissioning timeline for a solar power project. The judgment was delivered by a two-judge bench comprising Justice L. Nageswara Rao and Justice Vineet Saran, with the opinion authored by Justice L. Nageswara Rao.

Case Background

The dispute arose from two solar power projects in Karnataka. Karnataka Renewable Energy Development Limited (KREDL) initiated a project to develop 1200 MW of solar power across 60 taluks in Karnataka through private sector participation. Emmvee Photovoltaic Power Private Limited formed two Special Purpose Vehicles (SPVs) to bid for these projects. The SPVs, E.S. Solar Power Pvt. Ltd., were awarded the projects on 31 March 2016. Power Purchase Agreements (PPAs) were signed on 23 May 2016 and approved by the Karnataka Electricity Regulatory Commission (KERC) on 17 October 2016. Supplementary PPAs were signed on 17 December 2016, incorporating modifications suggested by KERC on 7 December 2016.

The Bidar project received its Commissioning Certificate on 25 October 2017, based on a meeting held on 16 October 2017. The Bagpalli project received its certificate on 23 November 2017. The dispute arose when the Bangalore Electricity Supply Company Limited (BESCOM) reduced the tariff payable to the SPVs from ₹6.10/kWh to ₹4.36/kWh and imposed damages of ₹20,00,000 for a delay in commissioning the plant. The SPVs contended that the projects commenced within 12 months from the date of PPA approval by KERC, which they argued was 16 October 2017, based on the meeting minutes of KPTCL.

Timeline

Course of Proceedings

The Respondents (E.S. Solar Power Pvt. Ltd. & Ors.) filed Original Petitions (OP No. 18 of 2018 and OP No. 19 of 2018) before the Karnataka Electricity Regulatory Commission (KERC), challenging the reduction of tariff and imposition of damages. KERC dismissed the petitions, holding that the Scheduled Commissioning Date (SCOD) was 16 October 2017 and that the injection of power into the grid was a prerequisite for declaring a project commissioned, which only occurred on 17 October 2017. The Respondents then appealed to the Appellate Tribunal for Electricity, which reversed the KERC’s decision, stating that the commissioning date was 16 October 2017, and even if taken as 17 October 2017, the project was within the stipulated time. The Bangalore Electricity Supply Company Limited (BESCOM) then appealed to the Supreme Court.

Legal Framework

The core of the dispute revolves around the interpretation of the Power Purchase Agreement (PPA) and the determination of the Scheduled Commissioning Date (SCOD). The relevant provisions of the PPA are:

• Article 1.1: Defines terms used in the agreement.
• Article 1.2(k): “any reference to month shall mean a reference to a calendar month as per the Gregorian calendar;”
• Article 1.2(l) and (m): “any reference to any period commencing ‘from’ a specified day or date and ’till’ or ‘until’ a specified day or date shall include both such days or dates; provided that if the last day of any period computed under this Agreement is not a business day, then the period shall run until the end of the next business day;”
• Article 1.2.4: “Any word or expression used in this Agreement shall, unless otherwise defined or construed in this Agreement, bear its ordinary English meaning and, for these purposes, the General Clauses Act 1897 shall not apply.”
• Article 3.1: “This Agreement shall come into effect from the date of getting concurrence from KERC on the PPA and such date shall be referred to as the Effective Date.”
• Article 5.1.1(c): Requires the Developer to commence supply of power by the Scheduled Commissioning Date.
• Article 5.8: Specifies liquidated damages for delays in commencing power supply.
• Article 8.5: “The Developer shall commission the Project within 12 months from the Effective Date.”
• Article 12.1: Specifies the tariff of INR 6.10/kWh for energy supplied by the developer.
• Article 12.2: Provides for a reduction in tariff if the project is commissioned beyond the Scheduled Commissioning Date.
• Article 21: Defines key terms, including:
  • “COD” or “Commercial Operation Date”: “shall mean the actual commissioning date of respective units of the Power Project where upon the Developer starts injecting power from the Power Project to the Delivery Point.”
  • “Effective Date”: “shall mean date of Approval of PPA KERC;”
  • “Month”: “shall mean a period of thirty, (30) days from (and excluding) the date of the event, where applicable, else a calendar month.”
  • “Scheduled Commissioning Date”: “shall mean 12 (twelve) months from the Effective Date.”

Arguments

Appellant (BESCOM) Arguments:

• The Appellate Tribunal incorrectly interfered with the well-reasoned order of the Karnataka Electricity Regulatory Commission (KERC).
• The Scheduled Commissioning Date (SCOD) is 17 October 2017, not 16 October 2017, based on the terms of the PPA.
• Injection of power into the grid is a prerequisite for determining the date of commissioning of a solar plant.
• The Appellate Tribunal erred in relying on judgments related to the General Clauses Act, as the PPA explicitly excludes its applicability.
• The tariff reduction and imposition of liquidated damages were justified due to the delay in commissioning.
• The PPA’s Article 1.2.1(m) includes both the start and end dates when calculating a period.

Respondent (E.S. Solar Power Pvt. Ltd.) Arguments:

• The twelve-month period for determining the SCOD should begin from 17 October 2016, the date of PPA approval by KERC.
• The date of the event (17 October 2016) should be excluded when calculating the twelve-month period, making the SCOD 17 October 2017.
• Even if 17 October 2016 is included, the twelve months end on 16 October 2017, when the plants were commissioned.
• Commissioning of the plant is different from the Commercial Operation Date (COD).
• The reduction of tariff would negatively impact the solar plants.
• There was minimum generation of power on 16 October 2017, which was used for auxiliary purposes, not injection into the grid.
• The Commissioning Certificate issued by KPTCL confirms that the plants were commissioned on 16 October 2017.
• The definition of ‘Month’ in Article 21.1 of the PPA, which states “excluding the date of the event,” supports their argument.

Issues Framed by the Supreme Court

The Supreme Court considered the following issues:

1. Whether the Scheduled Commissioning Date (SCOD) of the Solar Power Projects falls on 16.10.2017 or 17.10.2017.
2. Whether the definition of ‘Month’ in Article 21 of the PPA requires the exclusion of the date of the event (i.e. 17.10.2016) when computing the SCOD.
3. Whether the injection of power into the grid is a prerequisite for deciding the date of commissioning of the projects.
4. Whether the ‘Commercial Operation Date’ and ‘Commissioning Date’ are one and the same.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Court considered the following authorities:

Judgment

How each authority was viewed by the Court:

• The Court referred to Investors Compensation Scheme Limited vs. West Bromwich Building Society [1998 (1) AIR 98]* to set out the principles for interpreting contracts, emphasizing the need to understand the meaning a reasonable person would give to the document, considering the background knowledge available to the parties.
• The Court cited Smt. Kamala Devi vs. Seth Takhatmal & Anr [1964 (2) SCR 152]* to highlight that the court’s role is to interpret the expressed intentions of the parties, not to explore their undisclosed intentions.
• The Court used Ashville Investment v. Elmer Contractors [1988 (2) All ER 577]* to state that when a clause is ambiguous, the court should prefer the interpretation that aligns with the underlying purpose of the contract.
• The Court referenced Bank of India and Anr. v. K. MohanDas and Ors [2009 5 SCC 313]* to emphasize that the intention of the parties should be understood from the language they used, considering the surrounding circumstances.
• The Court cited Bihar State Electricity Board, Patna and Ors. v. M/s. Green Rubber Industries and Ors [1990 (1) SCC 731]* to underscore that the entire context of a contract must be considered when interpreting a clause.

What weighed in the mind of the Court?

The Court’s decision was primarily influenced by the specific language used in the Power Purchase Agreement (PPA), particularly the definition of “Month” in Article 21.1. The court emphasized that the definition of ‘Month’ clearly states that it means a period of 30 days from (and excluding) the date of the event or a calendar month. The inclusion of the phrase “excluding the date of the event” was pivotal in the Court’s reasoning. The Court also focused on the fact that Article 1.2.1(k) of the PPA states that any reference to a month shall mean a reference to a calendar month as per the Gregorian calendar. The Court noted that the definition of ‘SCOD’ specifically mentions ‘twelve months’ and Article 1.2.1(k) provides that any reference to a ‘Month’ shall be a calendar month. The Court held that the applicability of Article 1.2.1(k) excludes the operation of Article 1.2.1(m) to the facts of this case. This interpretation led the Court to conclude that the date of approval of the PPA (17.10.2016) should be excluded when calculating the 12-month period for the Scheduled Commissioning Date (SCOD). The Court also noted that the Commission had wrongly applied Article 1.2.1(m) of the PPA. The Court also took note of the fact that there was no dispute between the parties that 12 months means 365 days. The Court also noted that there was no dispute that the effective date is 17.10.2016.

Logical Reasoning:

The Court considered an alternative interpretation that the date of the event should be included as per Article 1.2.1(m) of the PPA. However, the Court rejected this interpretation, holding that the specific definition of “Month” in Article 21.1, which explicitly excludes the date of the event, takes precedence. The Court reasoned that the specific mention of ‘twelve months’ in the definition of ‘SCOD’ and Article 1.2.1(k) which provides that any reference to a ‘Month’ shall be a calendar month, excludes the operation of Article 1.2.1(m) to the facts of this case. The Court also rejected the Commission’s view that the definition of month was with reference only to one month and not more. The Court found that the Commission had committed an error in applying 1.2.1(m) when the provision that is applicable is 1.2.1 (k) read with the definition of month in Article 21.1. The final decision was reached by prioritizing the specific contractual language and the definition of “Month” as defined in the agreement.

The Supreme Court held that the Scheduled Commissioning Date (SCOD) for the solar power projects was 17 October 2017. This conclusion was based on the interpretation of the term “Month” in the Power Purchase Agreement (PPA), which explicitly excludes the date of the event (i.e., the date of approval of the PPA) when calculating the 12-month period. The Court also held that the Commission had wrongly applied Article 1.2.1(m) of the PPA. The Court did not find it necessary to adjudicate on the issue of whether the injection of power into the grid is a prerequisite for deciding the date of commissioning of the projects, as the SCOD was determined to be 17.10.2017.

“The crucial expression in the definition of ‘Month’ is “excluding the date of the event”. If the date of the event i.e. 17.10.2016 is excluded, the Scheduled Commissioning Date would be 17.10.2017.”

“We do not agree with the conclusion of the Commission that the definition of month is with reference only to one month and not more which is wrong a reading of the provision.”

“In our view, the Commission has committed an error in applying 1.2.1 (m) when the provision that is applicable is 1.2.1 (k) read with the definition of month in Article 21.1.”

Key Takeaways

• Contractual Language is Paramount: The Supreme Court emphasized that the specific language used in a contract, particularly definitions, should be the primary basis for interpretation.
• Exclusion of the Date of the Event: When a contract defines a period as “excluding the date of the event,” that date must be excluded when calculating the period.
• Importance of Definitions: The definition of “Month” in Article 21.1 of the PPA was crucial in determining the Scheduled Commissioning Date.
• Interpretation of “Month”: The Court clarified that “month” in this context should be interpreted as a calendar month, and not a period of 30 days.
• Rejection of Commission’s View: The Court rejected the view of the Karnataka Electricity Regulatory Commission (KERC) that the date of the event should be included and that the definition of month is with reference only to one month and not more.
• Implications for Future Contracts: This judgment highlights the importance of clear and precise language in contracts, especially in the context of renewable energy projects.

Directions

The Supreme Court granted four weeks’ time to implement the judgment of the Appellate Tribunal.

Development of Law

The ratio decidendi of this case is that when a contract defines a period as “excluding the date of the event,” that date must be excluded when calculating the period. This judgment clarifies how to interpret the term “month” in the context of a Power Purchase Agreement (PPA) and emphasizes the importance of specific definitions in contracts. This decision also clarifies that where there is a specific definition of a term in the contract, it is the specific definition that will apply, and not the general definition.

Conclusion

The Supreme Court upheld the Appellate Tribunal’s decision, ruling that the Scheduled Commissioning Date (SCOD) for the solar power projects was 17 October 2017. This decision was based on a careful interpretation of the Power Purchase Agreement (PPA), particularly the definition of “Month,” which explicitly excludes the date of the event. The Court emphasized the importance of clear and precise contractual language and rejected the Karnataka Electricity Regulatory Commission’s (KERC) interpretation. This judgment provides clarity on how to calculate commissioning timelines in similar agreements and underscores the importance of adhering to the specific definitions provided in contracts.