Supreme Court Upholds Power to Reject Misaligned Bids in Electricity Procurement: Jaipur Vidyut Vitran Nigam Ltd. vs. MB Power (Madhya Pradesh) Limited (2024)

Introduction

Date of the Judgment: 8 January 2024
Citation: 2024 INSC 23
Judges: B.R. Gavai, J. and Prashant Kumar Mishra, J.

Can a state electricity regulatory commission reject a bid in a transparent bidding process if the tariff quoted is not aligned with market prices? The Supreme Court of India recently addressed this critical question in a dispute over power procurement in Rajasthan. This case clarifies the extent of the regulatory body’s power and its responsibility to protect consumer interests. The judgment was delivered by a two-judge bench consisting of Justice B.R. Gavai and Justice Prashant Kumar Mishra.

Case Background

The dispute arose from a competitive bidding process initiated by Rajasthan Rajya Vidyut Prasaran Nigam Limited (RVPN) in 2009 to procure 1000 MW of power. Following the bidding process, seven bidders qualified for the financial bid round. PTC India, a power trading company, submitted a bid to procure power from multiple generators, including MB Power (Madhya Pradesh) Limited. The Bid Evaluation Committee (BEC) ranked the bids based on levelized tariff, with MB Power ranked seventh (L-7). Negotiations were held with the top three bidders (L-1, L-2, and L-3), leading to increased power allocations for them. However, the Energy Assessment Committee (EAC) later recommended reducing the procurement to 600 MW, and subsequently, the Government of Rajasthan approved the purchase of only 500 MW. This decision was challenged by various bidders, leading to a series of appeals and court cases.

Timeline

Course of Proceedings

The initial decision to reduce the power procurement from 1000 MW to 500 MW by the State Commission was challenged by L-2 and L-3 bidders before the Appellate Tribunal for Electricity (APTEL). APTEL ruled in favor of the bidders, stating the reduction was incorrect. This decision was then appealed to the Supreme Court, which upheld the APTEL’s decision on the total quantum but reversed the increase in quantum through negotiations. The Supreme Court directed the State Commission to consider the tariff adoption for L-4 and L-5 bidders. Subsequently, the State Commission found the tariffs of L-4 and L-5 bidders to be misaligned with market prices, which was again challenged before APTEL. APTEL ruled that the State Commission had to adopt the tariff and could not consider market alignment. Finally, MB Power, the L-7 bidder, filed a writ petition before the High Court, which was allowed, leading to the current appeals before the Supreme Court.

Legal Framework

The case revolves around Section 63 of the Electricity Act, 2003, which allows the appropriate commission to adopt a tariff determined through a transparent bidding process as per the guidelines issued by the Central Government. The Bidding Guidelines, notified on 19th January 2005, aim to promote competitive procurement, ensure transparency, and protect consumer interests. Clause 5.15 of these guidelines states that the evaluation committee can reject all price bids if the rates are not aligned with prevailing market prices. Additionally, Section 86(1)(b) of the Electricity Act empowers the State Commission to regulate electricity purchase and procurement processes, including the price at which electricity is procured. The Supreme Court also considered Section 13(2) of the General Clauses Act, which states that words in the singular shall include the plural, and vice versa, in the context of interpreting the word “all” in the Bidding Guidelines.

Relevant legal provisions include:

• Section 63, Electricity Act, 2003: “Determination of tariff by bidding process. – Notwithstanding anything contained in section 62, the Appropriate Commission shall adopt the tariff if such tariff has been determined through transparent process of bidding in accordance with the guidelines issued by the Central Government.”
• Section 86(1)(b), Electricity Act, 2003: “Functions of State Commission. – (1) The State Commission shall discharge the following functions, namely: – (a) ……………. (b) regulate electricity purchase and procurement process of distribution licensees including the price at which electricity shall be procured from the generating companies or licensees or from other sources through agreements for purchase of power for distribution and supply within the State;”
• Clause 5.15, Bidding Guidelines: “The bidder who has quoted lowest levellised tariff as per evaluation procedure, shall be considered for the award. The evaluation committee shall have the right to reject all price bids if the rates quoted are not aligned to the prevailing market prices.”

Arguments

Appellants’ Arguments:

• The writ petition filed by MB Power was not maintainable before the High Court under Article 226 of the Constitution, as the Electricity Act provides a specific forum for dispute resolution.
• MB Power was not a “successful bidder” as no Letter of Intent (LoI) was issued to them.
• The theory of “filling the bucket,” which obligates the procurer to accept bids up to the required capacity, is not supported by the RFP or Bidding Guidelines.
• The direction of the Supreme Court dated 25th April 2018 was specifically restricted to L-1 to L-5 bidders, and not for L-7 bidder.
• The State Commission has the power to reject the adoption of tariff if it is not aligned to market prices, and the certificate stating the bidding process was in conformity with the RFP does not mean that L-7 was qualified to be selected as a successful bidder.
• The State Commission, while adopting the tariff, must consider the protection of consumer interest.
• Bidders have no vested right to contract, and Article 226 of the Constitution cannot be used to award a contract.

Respondents’ Arguments:

• Under Section 63 of the Electricity Act, the Commission only “adopts” tariff, and does not “determine” it, and is bound by the guidelines issued by the Central Government.
• The Commission can only consider if the bidding process was transparent and in accordance with the guidelines.
• The issue of market alignment does not arise if the bidding process is transparent and follows the Bidding Guidelines.
• MB Power’s quoted tariff was market-aligned, not only in 2013 but also today, and the recent bids for 160 MW electricity have higher tariffs.
• Negotiations were not permissible, and the certificate issued by BEC confirms the transparency of the bid.
• The power to reject bids is in respect of all price bids, and not individual bids, and the procurer cannot arbitrarily reject bids.
• The consumers’ interest includes reliable, quality, and uninterrupted power on a long-term basis, besides being competitive.
• The appellants are bound to procure 906 MW of power, and the RFP provides for “bucket filling” until the entire requisitioned capacity is met.
• There was no delay and laches, as the occasion to revalidate the claim of the respondent No.1 arose only after knowing the incapacity of other bidders to honor their offered capacity.

Issues Framed by the Supreme Court

The Supreme Court framed the following key issues:

1. Whether the High Court was justified in entertaining the writ petition under Article 226 of the Constitution of India.
2. Whether the State Commission has the power to reject a bid if the rates quoted are not aligned to the prevailing market prices.
3. Whether the State Commission has the power to consider the aspect of consumer interest while adopting the tariff.
4. Whether the High Court was justified in issuing a mandamus to the appellants to enter into a contract with the respondent No.1.

Treatment of the Issue by the Court

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

Authorities

The Supreme Court considered the following authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The Supreme Court relied on PTC India Limited v. Central Electricity Regulatory Commission [CITATION] to emphasize that the Electricity Act is a complete code and disputes should be resolved within its framework.
• The Court cited Energy Watchdog v. Central Electricity Regulatory Commission and others [CITATION] to clarify that the Commission has regulatory power and must ensure tariffs are in accordance with guidelines, and does not act as a mere post office under Section 63 of the Electricity Act.
• Tata Power Company Limited Transmission v. Maharashtra Electricity Regulatory Commission & Ors. [CITATION] was used to support that the State Commission has the power to reject tariffs not aligned with market prices.
• The Court used GMR Warora Energy Limited v. Central Electricity Regulatory Commission (CERC) & Ors. [CITATION] to highlight the importance of balancing consumer and generator interests.
• The Court cited Tata Cellular v. Union of India [CITATION], Rajasthan Housing Board and another v. G.S. Investments and another [CITATION], and Laxmikant and others v. Satyawan and others [CITATION] to emphasize that bidders do not have a vested right to a contract.
• The Court referred to R. Viswanathan and others v. Rukn-ul-Mulk Syed Abdul Wajid since deceased and others [CITATION] and Deccan Paper Mills Company Limited v. Regency Mahavir Properties & Ors. [CITATION] to distinguish between judgments in rem and in personam and clarify that the Supreme Court’s previous order was not an order in rem.
• The Court used Vivek Narayan Sharma and others v. Union of India and others [CITATION], Chief Inspector of Mines v. Lala Karam Chand Thapar [CITATION], to interpret the word “any” as including “all” depending on the context.
• The Court used Air India Ltd. v. Cochin International Airport Ltd. and others [CITATION] to emphasize that the award of contract is a commercial decision and the court should be cautious in interfering.
• The Court cited Reliance Infrastructure Limited v. State of Maharashtra and others [CITATION] to emphasize the limited scope of judicial review.
• The Court cited Radha Krishan Industries v. State of Himachal Pradesh and others [CITATION] and South Indian Bank Ltd. and others v. Naveen Mathew Philip and another [CITATION] to explain the principles on the rule of alternate remedy and its exceptions.

What weighed in the mind of the Court?

The Supreme Court’s decision was heavily influenced by the need to protect consumer interests and ensure fair competition in electricity procurement. The Court emphasized that the State Commission has a crucial role in regulating electricity prices and cannot act as a mere post office. The Court was also concerned that accepting bids at exorbitant rates would burden consumers and undermine the objectives of the Electricity Act. The Court also focused on the fact that the High Court had interfered in a matter where an alternative remedy was available and that the High Court had issued a mandamus to enter into a contract that was not in the public interest.

Decision

The Supreme Court allowed the appeals, setting aside the High Court’s order. The Court upheld the State Commission’s power to reject bids that are not aligned with prevailing market prices, even after a transparent bidding process. The Court emphasized that consumer interest is paramount in electricity procurement and that the State Commission has a regulatory role to ensure fair and reasonable prices. The Court also held that the High Court should not have entertained the writ petition under Article 226 of the Constitution of India when an alternate remedy was available under the Electricity Act. The Court also held that the High Court could not have issued a mandamus to enter into a contract that was not in the public interest.

Flowchart of the Case