State Of Kerala Represented By vs Indsil Electrosmelts Ltd Having Its ... on 15 February, 2013

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Kerala High Court

State Of Kerala Represented By vs Indsil Electrosmelts Ltd Having Its ... on 15 February, 2013

All these matters were listed together. However, at the request of the learned counsel for the party respondents, Writ Appeal Nos. 1345 of 2013 & 18 of 2014 and Writ Appeal Nos. 1355 of 2013, 116 of 2014 & Cross Objection Nos.96/13 & 18/14 were separately heard.

Writ Appeal Nos. 1345 of 2013 & 18 of 2014

2. These writ appeals are filed by respondents 1, 2 and 3 in WP(C) No.4596/08, who are aggrieved by the judgment dated 15/2/13 rendered by the learned single Judge allowing the writ petition.

3. Briefly stated, the case of the 1st respondent was that it has established a factory in Palakkad District for the manufacture of Ferro Alloys and is an EHT consumer, availing of supply of electrical energy from the Kerala State Electricity Board. On 7/12/90, the Government of Kerala issued Ext.P1 GO(MS) Writ Appeal Nos. 1345 of 2013 & connected cases : 2 :

No.23/90/PD dated 7/12/90 allowing private agencies and public undertakings to set up sanctioned hydel schemes of the category small/mini/micro at their own cost. As per the scheme, the construction, operation and maintenance of the hydel scheme is to be managed by the agency as per the stipulations insisted upon by the Government/Board. Among the various conditions that are incorporated in the Government Order, in so far as this case is concerned, clauses 14 and 15 being relevant, are extracted below for reference;

"14. Royalty for the use of water together with the tax and duties on generation of power as fixed by Government/Board from time to time have to be paid by the agency.

Normally generation of power from schemes of the category small/mini/micro utilizing the storage benefit of existing reservoirs and tailrace benefit of existing power stations will not be entrusted with private agencies. But Government may under special circumstances allow such in order to account for the additional advantage gained by the agency by way of getting the controlled releases, the agency will have to pay to Governments or the Board as the case may be, in tariff equivalent to the cost component for the Writ Appeal Nos. 1345 of 2013 & connected cases : 3 : controlled release utilised by the agency for the energy generated from the scheme. This will be in addition to the royalty of water if aNy, to be paid. The tariff storage/controlled release as above are to be worked out in respect of each scheme separately taking into account the above facts.

15. For assessment of water quantity used, the application of the formula 8 QH- Power in KW where Q is in M3/sec and H is the net head in metre for which the machines are designed by the Manufacturers, will be made use of.

4. The 1st respondent expressed their interest in setting up a small hydel scheme. There was also other industries which were similarly interested. Several meetings took place between them and the Government. Finally, Ext.P3 agreement was entered into between the Secretary of the KSEB and the 1st respondent on 13th of December, 1994, which states that by its order dated 22/8/92 Kuthungal Phase I and II project in Idukki district was allotted to the 1st respondent for execution and operation for a period of 30 years from the date of commissioning the project. In the preamble to the agreement itself it is provided that Ext.P1 Government Order dated 7/12/90 and GO(Ms) No.5/92/PD dated 12/3/92 shall form part of this agreement, as if Writ Appeal Nos. 1345 of 2013 & connected cases : 4 :

incorporated therein. Clause 19 of the agreement which provided for levy of cess/royalties for use of water, being relevant, is extracted below for reference;

"19. Cess/Royalties for use of water, if decided by the Government together with tax/duties as fixed by Government from time to time shall be paid by the company to Government."

5. In pursuance of Ext.P3 agreement, the 1st respondent proceeded to set up the project and on its completion, the project was commissioned. Subsequently, by Ext.P11 order dated 3/7/04 was issued by the Government ordering that the royalty and cost of controlled release of water to the Kuthungal Hydro Electric Project due from the 1st respondent shall be reckoned on the quantum of energy generated and shall be 10% of the energy tariff rate for EHT consumers current from time to time for every unit of energy generated. The relevant portion of this order reads thus;

"Government after detailed examination hereby order that the royalty and cost of controlled release of water to the Kuthungal HEP shall be reckoned on the quantum of energy generated and shall be 10% of the energy tariff rate for EHT consumers current from time to time for every unit of energy generated and in addition, the Company is liable to pay 1.2 paise per unit as electricity duty for each unit of electricity Writ Appeal Nos. 1345 of 2013 & connected cases : 5 :

generated in accordance with the provision of the Kerala Electricity Duty Act."

6. In WP(C) No.22187/04, the 1st respondent challenged Ext.P11 order before this Court and by Ext.P12 judgment, the writ petition was dismissed as withdrawn reserving liberty to the 1st respondent to move the Government. Accordingly, Exts.P13 and P14 representations were made to the then Chief Minister and Minister for Electricity objecting to the levy by Ext.P11. That was considered and rejected by Ext.P15 order. In that order, in so far as the royalty levied is concerned, it was stated thus;

"Kuthungal HEP is a CPP and it utilizes the water from the free catchment between the Anayirankal dam and Kuthungal weir as well as the controlled releases from the Anayirankal dam. The Ponmudi and Anayirankal reservoirs of the Panniyar HEP are mainly intended for impounding and controlling the water for power generation. The water impounded at Anayirankal dam are regulated and discharged into the river during the lean months so as to enable the firming up of power generation. Kuthungal HEP consists of a diversion weir across Panniyar river at Mukkudi for the diversion and regulation of water released from Anayirankal dam.

As per clause 19 of the agreement dated 13.12.1994 cess/royalty for the use of water, if Writ Appeal Nos. 1345 of 2013 & connected cases : 6 :

decided by Government together with tax/duties as fixed by Government from time to time shall be paid by the Company to Government.

It is clear from the relevant clauses of the G.O granting permission to set up the said small/mini/micro HEP by private agencies that M/s.INDSIL had set up the project with the liability to abide by the conditions laid down in the G.Os and the above agreement. Based on the above only Government has ordered vide G.O(Rt) 283/04/PD. dated 3.7.2004 that, the royalty and cost of controlled release of water to the Kuthungal HEP shall be reckoned on the quantum of energy generated and shall be 10% of the energy tariff rate for EHT consumers current from time to time for every unit of energy generated and in addition, the Company is liable to pay 1.2 paise per unit as Electricity duty for each unit of electricity generated in accordance with the provision of the Kerala Electricity Duty Act and entrusted the Chief Electrical Inspector to collect the royalty from the company and remit it to the State Revenue.

The Kuthungal HEP is the second project of its kind implemented in the State as a Captive Power Plant. The first one is Maniyar HEP, 12 MW, owned by M/s. Carborandum Universal. For this project, which utilizes the controlled release of water from the Sabarigiri and Kakkad HEP of the Writ Appeal Nos. 1345 of 2013 & connected cases : 7 : KSEB, royalty and cost of controlled release of water is reckoned on the quantum of energy generated and is 10% of the tariff rate applicable to EHT consumers of the KSEB. It is this same rate that was made applicable to Kuthungal HEP also."

7. Following this, demands were raised on the 1st respondent by Exts.P16, P22 and P27. These demands were also objected by making repeated representations and finally the Government rejected the requests as per Ext.P28 order dated 23/1/2008. It was in these circumstances, the 1st respondent filed the writ petition seeking to quash Ext.P11 in so far as it relates to levy of royalty and the cost component of controlled release of water, to declare that the Government is devoid of jurisdiction to realise any amount from them by way of royalty or cess on the water used at their project and to declare that the levy of royalty/water cess is unconstitutional and ultra wires and beyond the legislative competence of the State. They also sought to set aside Exts.P15, P16, P22, P27 and P28.

8. Respondents in the writ petition filed their counter affidavits. The writ petition was heard and was allowed by the Writ Appeal Nos. 1345 of 2013 & connected cases : 8 : learned single Judge. It is this judgment which is challenged before us.

9. The learned single Judge has accepted the contention that the impugned order invidiously discriminated the 1st respondent because 59 other hydel power projects in the State have not been levied any royalty or cess. This, has been held to be a case of ex-facie discrimination, arbitrariness and unreasonableness offending Article 14 of the Constitution of India. This contention of the 1st respondent was answered by the appellants stating that the other projects, except that of M/s. Carborundum Universal Limited, are Independent Power Projects (IPP) and not Captive Power Projects (CPP) like that of the 1st respondent and M/s. Carborundum Universal Limited. According to the appellants, in the case of IPP's, power purchase agreements are executed between the owners of the projects and the Electricity Board whereby the entire power generated is purchased by the Board. Therefore, if any additional element by way of cess, royalty or other charges is levied, that will be added to the price payable by the Board. Consequently, when such energy is sold by the Board to its consumers, the energy sold Writ Appeal Nos. 1345 of 2013 & connected cases : 9 : would be more expensive. According to the appellants, to avoid such a situation, IPP's were not made liable for royalty or cess.

10. Yet another contention raised was that the IPP's in question were set up based on Exts.P8 and P9, revised guidelines issued by the Government on 11/10/2002 and 16/1/2003 respectively , and that, the terms and conditions and the obligations of the beneficiaries of these orders were different and incomparable to those who have set up hydel plants pursuant to Ext.P1 Government Order dated 7.12.1990.

11. However, these contentions were rejected by the learned single Judge holding that one can find no basis for the subsequent discrimination sought to be made by the State Government between the CPP's and IPP's. This conclusion was based on Exts.P8 and P9 referred to above. According to the learned single Judge, both CPP's and IPP's in effect augment the availability of power to the KSEB and both serve the same function. It is also found that if there is a common object sought to be achieved both from CPP's and IPP's as is evident from the States policy itself, there can be no rational basis for classifying the two differently to satisfy the tests required for Article 14 not Writ Appeal Nos. 1345 of 2013 & connected cases : 10 : to be offended. Yet another reason relied on by the appellants before the learned single Judge was that the IPP's in question were not based on any controlled release of water. This contention also has been rejected by the learned single Judge. According to the learned single Judge, controlled release of water is not for the benefit of the 1st respondent but was meant for the Panniyar Power Project of the KSEB and that the 1st respondent is only an incidental beneficiary. It is on the above reasoning that the learned single Judge has held that Ext.P11 order is invalid as it is discriminatory, arbitrary and issued in violation of Article 14 of the Constitution of India.

12. In so far as Clause 19 of the agreement which authorises levy of cess/royalty is concerned, the learned Judge examined the question whether the term "royalties" used in Clause 19 is in the nature of a tax. The learned Judge held that the terms "Cess" and "Royalty" are separated by a "/" and therefore both are used interchangeably and that therefore, the term "royalty" has not been used in Clause 19 in its ordinary sense of simply a charge imposed by an owner for the use of a natural resource and possibly for good reason. Writ Appeal Nos. 1345 of 2013 & connected cases : 11 :

13. Learned Judge thereafter relied on the principle noscitur a sociis and referring to the judgments of the Apex Court dealing with the said maxim, held that the term "royalty" should take its shades of meaning from the word "cess" and on that basis concluded that the term royalty used in Clause 19 is used not to enable an owner's levy of contractual royalty, but as a tax. Learned Judge also faulted the appellants for not adopting Clause 15 of the agreement where a formula has been incorporated for quantifying the royalty payable by assessing the quantity of water used by the 1st respondent.

14. Proceeding further, the learned Judge also examined the competency of the State to impose such a tax and concluded that the State cannot. However, as apparently this was not a question which was argued, the issue was left open. Again from paragraph 81 of the judgment, learned Judge examined the question whether the impugned levy is a tax on generation of energy and held it to be so and that the State was incompetent to levy the same. The issue of estoppel has also been considered and held in favour of the appellants. It is generally on the above basis that the learned single Judge has allowed the writ petition Writ Appeal Nos. 1345 of 2013 & connected cases : 12 : by holding that the Government is devoid of jurisdiction to realise any amount from the 1st respondent by way of royalty/cess on the water used from the Kuthungal Hydro Electric project and quashed Ext.P11.

15. We heard the learned senior counsel for the appellants and also the learned senior counsel appearing for the 1st respondent company, which filed the writ petition.

16. We have already made reference to Ext.P1 Government Order dated 7/12/90 by which the private agencies like the 1st respondent were allowed to set up sanctioned hydel schemes at their own cost. Clause 14 which also has been extracted, provides for two levies. First one is royalty to be paid by the agency for the use of water together with the tax and duties on generation of power as fixed by the Government/Board from time to time. The second part of this provision provides that the storage benefit of existing reservoirs and tailrace benefit of existing power stations will not be entrusted with private agencies and that the Government may under special circumstances allow such schemes to be set up by private parties. This order provides that in order to account for the additional advantage gained by Writ Appeal Nos. 1345 of 2013 & connected cases : 13 : the agency by way of getting the controlled releases, the agency will have to pay to Government or the Board, as the case may be, in tariff equivalent to the cost component for the controlled release utilised by the agency for the energy generated from time to time and that this would be in addition to the royalty for water if any, to be paid. Clause 15 of Ext.P1 provides that for assessment of quantity of water used, the formula mentioned therein will be adopted.

17. The preamble to Ext.P3 agreement specifically states that Ext.P1 Government Order shall form part of the agreement as if it is incorporated therein. In addition to the above, Clause 19 of the agreement provides that cess/royalties for use of water, if decided by the Government, together with tax/duties as fixed by Government from time to time, shall be paid by the company to Government. Therefore, by virtue of the agreement, which incorporates Ext. P1 Government Order, 1st respondent has undertaken the liability to pay royalty for the use of water. Further, if the 1st respondent is also a beneficiary of controlled release of water, it is also liable to pay to the Government or the Board, as the case may be, in tariff equivalent to the cost Writ Appeal Nos. 1345 of 2013 & connected cases : 14 :

component for the controlled release utilized by the agency for the energy generated from the scheme.

18. We shall now proceed to examine whether after entering into the agreement, it is open to one of the parties, viz., the first respondent to dispute the liability thereunder. In our view, the legal position is settled that after entering into an agreement, parties are estopped from disputing the liability. This question has been considered by the Apex Court in various instances and we shall refer to some of the judgments that were cited before us. The first judgment referred was S.K.Jain v. State of Haryana {(2009) 4 SCC 357}, where following the earlier judgment of the Apex Court in Excise Commr. v. Issac Peter {(1994) 4 SCC 104}, it was held thus in paragraphs 8, 9, 10 and 13.

"8. It is to be noted that the plea relating to unequal bargaining power was made with great emphasis based on certain observations made by this Court in Central Inland Water Transport Corpn. Ltd. v. Brojo Nath Ganguly. The said decision does not in any way assist the appellant, because at para 89 it has been clearly stated that the concept of unequal bargaining power has no application in case of commercial contracts.

Writ Appeal Nos. 1345 of 2013 & connected cases : 15 :

9. In Central Bank of India Ltd. v. Hartford Fire Insurance Co. Ltd. it was observed at para 5 as follows: (AIR p. 1290) "5. The contention of the appellant is based on the interpretation of Clause 10. Now it is commonplace that it is the court's duty to give effect to the bargain of the parties according to their intention and when that bargain is in writing the intention is to be looked for in the words used unless they are such that one may suspect that they do not convey the intention correctly. If those words are clear, there is very little that the court has to do.

The court must give effect to the plain meaning of the words however it may dislike the result. We have earlier set out Clause 10 and we find no difficulty or doubt as to the meaning of the language there used. Indeed the language is the plainest. The clause says `this insurance may be terminated at any time at the request of the insured', and `the insurance may also at any time be terminated at the instance of the Company'. These are all the words of the clause that matter for the present purpose. The words `at any time' can only mean `at any time the party concerned likes'. Shortly put Clause 10 says `either party may at its will terminate the policy'. No other meaning of the words used is conceivable."

10. In General Assurance Society Ltd. v. Chandmull Jain the decision was reiterated as follows: (AIR pp. Writ Appeal Nos. 1345 of 2013 & connected cases : 16 : 1648-49, para 11) `11. A contract of insurance is a species of commercial transactions and there is a well- established commercial practice to send cover notes even prior to the completion of a proper proposal or while the proposal is being considered or a policy is in preparation for delivery. A cover note is a temporary and limited agreement. It may be self-contained or it may incorporate by reference the terms and conditions of the future policy. When the cover note incorporates the policy in this manner, it does not have to recite the terms and conditions, but merely to refer to a particular standard policy. If the proposal is for a standard policy and the cover note refers to it, the assured is taken to have accepted the terms of that policy. The reference to the policy and its terms and conditions may be expressed in the proposal or the cover note or even in the letter of acceptance including the cover note. The incorporation of the terms and conditions of the policy may also arise from a combination of references in two or more documents passing between the parties. Documents like the proposal, cover note and the policy are commercial documents and to interpret them commercial habits and practice cannot altogether be ignored. During the time the cover note operates, the relations of the parties are governed by its terms Writ Appeal Nos. 1345 of 2013 & connected cases : 17 :

and conditions, if any, but more usually by the terms and conditions of the policy bargained for and to be issued. When this happens the terms of the policy are incipient but after the period of temporary cover, the relations are governed only by the terms and conditions of the policy unless insurance is declined in the meantime. Delay in issuing the policy makes no difference. The relations even then are governed by the future policy if the cover notes give sufficient indication that it would be so. In other respects there is no difference between a contract of insurance and any other contract except that in a contract of insurance there is a requirement of uberrima fides i.e. good faith on the part of the assured and the contract is likely to be construed contra proferentem that is against the company in case of ambiguity or doubt. A contract is formed when there is an unqualified acceptance of the proposal. Acceptance may be expressed in writing or it may even be implied if the insurer accepts the premium and retains it. In the case of the assured, a positive act on his part by which he recognises or seeks to enforce the policy amounts to an affirmation of it. This position was clearly recognised by the assured himself, because he wrote, close upon the expiry of the time of the cover notes, that either a policy should be issued to him before that period had expired or the cover Writ Appeal Nos. 1345 of 2013 & connected cases : 18 :

note extended in time. In interpreting documents relating to a contract of insurance, the duty of the court is to interpret the words in which the contract is expressed by the parties, because it is not for the court to make a new contract, however reasonable, if the parties have not made it themselves. Looking at the proposal, the letter of acceptance and the cover notes, it is clear that a contract of insurance under the standard policy for fire and extended to cover flood, cyclone, etc. had come into being."

13. In addition to the various pleas, the stand taken by the appellant is squarely answered by what has been stated by this Court in Excise Commr. v. Issac Peter. At para 26 it has been stated as follows: (SCC pp. 124-25) "26. Learned counsel for the respondents then submitted that doctrine of fairness and reasonableness must be read into contracts to which State is a party. It is submitted that the State cannot act unreasonably or unfairly even while acting under a contract involving State power. Now, let us see, what is the purpose for which this argument is addressed and what is the implication? The purpose, as we can see, is that though the contract says that supply of additional quota is discretionary, it must be read as obligatory--at least to the extent of previous year's supplies--by applying the said doctrine. It is Writ Appeal Nos. 1345 of 2013 & connected cases : 19 :

submitted that if this is not done, the licensees would suffer monetarily. The other purpose is to say that if the State is not able to so supply, it would be unreasonable on its part to demand the full amount due to it under the contract. In short, the duty to act fairly is sought to be imported into the contract to modify and alter its terms and to create an obligation upon the State which is not there in the contract. We must confess, we are not aware of any such doctrine of fairness or reasonableness. Nor could the learned counsel bring to our notice any decision laying down such a proposition. Doctrine of fairness or the duty to act fairly and reasonably is a doctrine developed in the administrative law field to ensure the rule of law and to prevent failure of justice where the action is administrative in nature. Just as principles of natural justice ensure fair decision where the function is quasi-judicial, the doctrine of fairness is evolved to ensure fair action where the function is administrative. But it can certainly not be invoked to amend, alter or vary the express terms of the contract between the parties. This is so, even if the contract is governed by statutory provisions i.e. where it is a statutory contract--or rather more so. It is one thing to say that a contract--every contract--must be construed reasonably having regard to its language. But this is not what the licensees say. They seek to create an obligation on Writ Appeal Nos. 1345 of 2013 & connected cases : 20 :

the other party to the contract, just because it happens to be the State. They are not prepared to apply the very same rule in converse case i.e. where the State has abundant supplies and wants the licensees to lift all the stocks. The licensees will undertake no obligation to lift all those stocks even if the State suffers loss. This one-sided obligation, in modification of express terms of the contract, in the name of duty to act fairly, is what we are unable to appreciate. The decisions cited by the learned counsel for the licensees do not support their proposition. In Dwarkadas Marfatia and Sons v. Board of Trustees of the Port of Bombay it was held that where a public authority is exempted from the operation of a statute like the Rent Control Act, it must be presumed that such exemption from the statute is coupled with the duty to act fairly and reasonably. The decision does not say that the terms and conditions of contract can be varied, added or altered by importing the said doctrine. It may be noted that though the said principle was affirmed, no relief was given to the appellant in that case. Shrilekha Vidyarthi v. State of U.P. was a case of mass termination of District Government Counsel in the State of U.P. It was a case of termination from a post involving public element. It was a case of non- government servant holding a public office, on account of which it was held to be a matter within Writ Appeal Nos. 1345 of 2013 & connected cases : 21 :

the public law field. This decision too does not affirm the principle now canvassed by the learned counsel. We are, therefore, of the opinion that in case of contracts freely entered into with the State, like the present ones, there is no room for invoking the doctrine of fairness and reasonableness against one party to the contract (State), for the purpose of altering or adding to the terms and conditions of the contract, merely because it happens to be the State. In such cases, the mutual rights and liabilities of the parties are governed by the terms of the contracts (which may be statutory in some cases) and the laws relating to contracts. It must be remembered that these contracts are entered into pursuant to public auction, floating of tenders or by negotiation.

There is no compulsion on anyone to enter into these contracts. It is voluntary on both sides. There can be no question of the State power being involved in such contracts. It bears repetition to say that the State does not guarantee profit to the licensees in such contracts. There is no warranty against incurring losses. It is a business for the licensees. Whether they make profit or incur loss is no concern of the State. In law, it is entitled to its money under the contract. It is not as if the licensees are going to pay more to the State in case they make substantial profits. We reiterate that what we have said hereinabove is in the Writ Appeal Nos. 1345 of 2013 & connected cases : 22 : context of contracts entered into between the State and its citizens pursuant to public auction, floating of tenders or by negotiation. It is not necessary to say more than this for the purpose of these cases. What would be the position in the case of contracts entered into otherwise than by public auction, floating of tenders or negotiation, we need not express any opinion herein."

(emphasis in original)

19. Again in Phulchand Exports Ltd. v. O.O.O. Patriot {(2011) 10 SCC 300}, this question was considered and the Apex Court held thus;

37. The transactions covered by Section 23 are the transactions where the consideration or object of such transaction is forbidden by law or the transaction is of such a nature that, if permitted, would defeat the provisions of any law or the transaction is fraudulent or the transaction involves or implies injury to the person or property of another or where the court regards it immoral or opposed to public policy. Whether a particular transaction is contrary to a public policy would ordinarily depend upon the nature of transaction. Where experienced businessmen are involved in a commercial contract and the parties are not of unequal bargaining power, the agreed terms must ordinarily be respected as the parties may be taken to have had regard to the matters known to Writ Appeal Nos. 1345 of 2013 & connected cases : 23 : them.

38. The sellers and the buyers in the present case are business persons having no unequal bargaining powers. They agreed on all terms of the contract being in conformity with the international trade and commerce. Having regard to the subject-matter of the contract, the clause for reimbursement or repayment in the circumstances provided therein is neither unreasonable nor unjust; far from being extravagant or unconscionable. It is the precise sum which the sellers are required to reimburse to the buyers, which they had received for the goods, in case of the non-arrival of the goods within the prescribed time. More so, the fact of the matter is that the goods never arrived at the port of discharge. The Arbitral Tribunal has only awarded reimbursement of half the price paid by the buyers to the sellers and, therefore, the award cannot be held to be unjust, unreasonable or unconscionable or contrary to the public policy of India.

20. As in the above case, the applicability of Section 23 of the Contract Act was considered by the Apex Court again in its judgment in Union of India v. Colonel L.S.N. Murthy and another {(2012) 1 SCC 718}, where after quoting Section 23 of the Contract Act, the Apex Court held in para 17 to 20 thus;

17. In Pollock & Mulla, Indian Contract and Specific Relief Acts, 13th Edn., Vol. I published by LexisNexis Butterworths, it is stated at p. 668:

Writ Appeal Nos. 1345 of 2013 & connected cases : 24 : "The words `defeat the provisions of any law' must be taken as limited to defeating the intention which the legislature has expressed, or which is necessarily implied from the express terms of an Act. It is unlawful to contract to do that which it is unlawful to do; but an agreement will not be void, merely because it tends to defeat some purpose ascribed to the legislature by conjecture, or even appearing, as a matter of history, from extraneous evidence, such as legislative debates or preliminary memoranda, not forming part of the enactment."

It is thus clear that the word "law" in the expression "defeat the provisions of any law" in Section 23 of the Contract Act is limited to the expressed terms of an Act of the legislature.

18. In Lachoo Mal v. Radhey Shyam this Court while deciding whether an agreement was void and not enforceable under Section 23 of the Contract Act held: (SCC pp. 622-23, para 7) "7. ... What makes an agreement, which is otherwise legal, void is that its performance is impossible except by disobedience of law. Clearly no question of illegality can arise unless the performance of the unlawful act was necessarily the effect of an agreement."

19. We are, therefore, of the opinion that unless the effect of an agreement results in performance of an unlawful act, an agreement which is otherwise legal cannot be held to be void and if the effect of an Writ Appeal Nos. 1345 of 2013 & connected cases : 25 :

agreement did not result in performance of an unlawful act, as a matter of public policy, the court should refuse to declare the contract void with a view to save the bargain entered into by the parties and the solemn promises made thereunder.

20. As has been observed by Lord Wright in Vita Food Products Inc. v. Unus Shipping Co. Ltd. (AC at p.

293):

"... Nor must it be forgotten that the rule by which contracts not expressly forbidden by statute or declared to be void are in proper cases nullified for disobedience to a statute is a rule of public policy only, and public policy understood in a wider sense may at times be better served by refusing to nullify a bargain save on serious and sufficient grounds."

21. The issue was again considered in Rajasthan State Industrial Development and Investment Corporation v. Diamond and Gem Development Corporation Limited {(2013) 5 SCC 470}, in which, in paragraphs 15, 16 and 23 and 24, the Apex Court held thus;

15. A party cannot be permitted to "blow hot- blow cold", "fast and loose" or "approbate and reprobate". Where one knowingly accepts the benefits of a contract, or conveyance, or of an order, he is estopped from denying the validity of, or the binding effect of such contract, or conveyance, or order upon himself. This rule is Writ Appeal Nos. 1345 of 2013 & connected cases : 26 : applied to ensure equity, however, it must not be applied in such a manner so as to violate the principles of what is right and of good conscience. [Vide Nagubai Ammal v. B. Shama Rao, CIT v. V. MR. P. Firm Muar, Ramesh Chandra Sankla v. Vikram Cement, Pradeep Oil Corpn. v. MCD, Cauvery Coffee Traders v. Hornor Resources (International) Co. Ltd. and V. Chandrasekaran v. Administrative Officer.]

16. Thus, it is evident that the doctrine of election is based on the rule of estoppel--the principle that one cannot approbate and reprobate is inherent in it. The doctrine of estoppel by election is one among the species of estoppels in pais (or equitable estoppel), which is a rule of equity. By this law, a person may be precluded, by way of his actions, or conduct, or silence when it is his duty to speak, from asserting a right which he would have otherwise had.

23. A party cannot claim anything more than what is covered by the terms of contract, for the reason that contract is a transaction between the two parties and has been entered into with open eyes and understanding the nature of contract. Thus, contract being a creature of an agreement between two or more parties, has to be interpreted giving literal meanings unless, there is some ambiguity therein. The contract is Writ Appeal Nos. 1345 of 2013 & connected cases : 27 :

to be interpreted giving the actual meaning to the words contained in the contract and it is not permissible for the court to make a new contract, however reasonable, if the parties have not made it themselves. It is to be interpreted in such a way that its terms may not be varied. The contract has to be interpreted without any outside aid. The terms of the contract have to be construed strictly without altering the nature of the contract, as it may affect the interest of either of the parties adversely. [Vide United India Insurance Co. Ltd. v. Harchand Rai Chandan Lal and Polymat India (P) Ltd. v. National Insurance Co. Ltd.]

24. In DLF Universal Ltd. v. Town and Country Planning Deptt. this Court held: (SCC pp. 14-15, paras 13-15) "13. It is a settled principle in law that a contract is interpreted according to its purpose. The purpose of a contract is the interests, objectives, values, policy that the contract is designed to actualise. It comprises the joint intent of the parties. Every such contract expresses the autonomy of the contractual parties' private will. It creates reasonable, legally protected expectations between the parties and reliance on its results. Consistent with the character of purposive interpretation, the court is required to determine the ultimate purpose of a contract Writ Appeal Nos. 1345 of 2013 & connected cases : 28 :

primarily by the joint intent of the parties at the time the contract so formed. It is not the intent of a single party; it is the joint intent of both the parties and the joint intent of the parties is to be discovered from the entirety of the contract and the circumstances surrounding its formation.

14. As is stated in Anson's Law of Contract:

`a basic principle of the common law of contract is that the parties are free to determine for themselves what primary obligations they will accept.... Today, the position is seen in a different light. Freedom of contract is generally regarded as a reasonable, social, ideal only to the extent that equality of bargaining power between the contracting parties can be assumed and no injury is done to the interests of the community at large.'

15. The Court assumes:

`that the parties to the contract are reasonable persons who seek to achieve reasonable results, fairness and efficiency.... In a contract between the joint intent of the parties and the intent of the reasonable person, joint intent trumps, and the Judge should interpret the contract accordingly.'

22. These judgments fully support the view that unless the provisions of the agreement are shown to be unconstitutional or Writ Appeal Nos. 1345 of 2013 & connected cases : 29 : illegal for any reason, it is not open to one of the parties to dispute his liability under an agreement.

23. We shall now proceed to examine the correctness of the conclusions of the learned single Judge.

24. The first ground on which the learned single Judge has interfered with Ext.P11 is that it violated Article 14 of the Constitution of India which prohibits discrimination. The judgment shows that according to the learned single Judge, the distinction between the 1st respondent's Hydro Electric Plant and others on the basis that the former is a CPP and the latter is an IPP, is an artificial one and has no object that is sought to be achieved by it.

In our view, this conclusion of the learned single Judge has no basis. As we have already seen the Hydro Electric Project of the 1st respondent is a Captive Power Plant, which is meant only to cater to their own requirement of electrical energy at their factory in Palakkad. Therefore, generation at CPP does not involve any sale either to the Electricity Board or to anybody else. On the other hand, the remaining power plants, except the one established by M/s Carborandum Universal Limited, are Independent Power Plants which have entered into power Writ Appeal Nos. 1345 of 2013 & connected cases : 30 : purchase agreements with the KSEB on the basis of which the entire power generated is purchased by the Electricity Board on terms and conditions which are mutually agreed between the parties. In respect of the power thus generated by the IPP's, if the Board or the State levys royalty, cess or other charges, that will necessarily be added to the price at which the energy generated is sold to the Board. Such increased price paid by the Board to the generating company, necessarily will have to be passed on to the Board's consumers, who are the end users of the energy generated. This necessarily will lead to a situation where the energy generated and sold to consumers would become costlier. According to the Board and the Government, this was the reason why the IPP's were relieved of the obligation to pay royalties or cess or other charges on the energy generated by them.

25. Learned single Judge has held that both IPP and CPP are established for the same purpose of augmenting energy generation. But the learned single Judge has lost sight of the distinguishing factor that the energy generated by the CPP of the 1st respondent is not available for distribution to consumers and that it is only for self consumption unlike the other IPP's. Writ Appeal Nos. 1345 of 2013 & connected cases : 31 : Therefore, in our view, the justification that if royalty or cess or other charges are levied, the energy generated at IPP's would be more expensive to the consumer and that it was therefore that the IPP's were relieved of that obligation, is a valid reason for classification of IPP's and CPP's under Article 14 of the Constitution of India.

26. Secondly, IPP's that are complained of by the 1st respondent were established pursuant to Exts.P8 and P9 orders issued by the Government of Kerala in 2002 and 2003. These orders show that the terms and conditions that are incorporated in these orders are totally different from what are contained in Ext.P1, pursuant to which sanction was accorded, agreement was executed and the project was established by the 1st respondent. Therefore, the obligations undertaken by the 1st respondent in Ext.P3 agreement and the obligations that are fastened on the beneficiaries of Ext.P8 and Ext.P9 are incomparable and different. That itself shows that the 1st respondent and the owners of the independent power plants fall in separate classes and therefore also there cannot be any discrimination to be complained of. Writ Appeal Nos. 1345 of 2013 & connected cases : 32 :

27. Yet another reason, in our view, a valid one, urged by the Electricity Board was that unlike the case of the 1st respondent, the 59 IPP's are not beneficiaries of controlled release of water. The pleadings show that according to the State, 22.54% of the power generated by the 1st respondent at its CPP is attributable to controlled release of water. On the other hand, IPP's are not beneficiaries of such controlled release. That also is a sound reason to hold that the CPP's and IPP's are not similarly situated.

28. In sum and substance, we are unable to endorse the conclusion of the learned Single Judge that by issuing Ext.P11, the 1st respondent was treated in a discriminatory manner or that Ext.P11 is arbitrary or unreasonable offending Article 14 of the Constitution of India.

29. Dealing with Clause 19 of the agreement, learned Judge has concluded that royalty is a tax and has doubted the competence of the State to levy such tax. We have already examined the nature of the levy of royalty and have concluded that it is a contractual levy reserved by the granter to be paid by the grantee as a consideration of a right granted under the Writ Appeal Nos. 1345 of 2013 & connected cases : 33 : contract between the two. Though the concept of royalty is as indicated above, learned single Judge has found that cess and royalties mentioned in Clause 19 of the agreement are separated by a "/" and that therefore the word royalty should take its colour from cess, which is a tax and therefore royalty is also a tax. To arrive at that conclusion, learned Judge has relied on the maxim noscitur a sociis. The learned Judge has further held that a perusal of Clause 19 of the agreement also indicates that the intention of the parties was to levy royalty or cess on the 1st respondent as and when the State decides to levy such a tax in general on all the beneficiaries of the policy allowing hydel projects in the State and that the royalty cannot be levied individually on the 1st respondent.

30. The maxim noscitur a sociis has been explained by the Apex Court in various cases and the meaning of this maxim is that words of analogous nature are to be understood in their cognate sense.

31. In Godfrey Philips India Ltd. v. State of U.P {(2005) 2 SCC 515}, this maxim has been explained by the Apex Court thus;

Writ Appeal Nos. 1345 of 2013 & connected cases : 34 :

"75. Where two or more words susceptible of analogous meaning are clubbed together, they are understood to be used in their cognate sense. They take, as it were, their colour from and are qualified by each other, the meaning of the general word being restricted to a sense analogous to that of the less general."

32. This maxim was again explained in Maharashtra University of Health Sciences v. Satchikitsa Prasarak Mandal {(2010) 3 SCC 786} thus;

"28. This ejusdem generis principle is a facet of the principle of noscitur a sociis. The Latin maxim noscitur a sociis contemplates that a statutory term is recognised by its associated words. The Latin word sociis" means "society". Therefore, when general words are juxtaposed with specific words, general words cannot be read in isolation. Their colour and their contents are to be derived from their context. (See similar observations of Viscount Simonds in Attorney General v. Prince Ernest Augustus of Hanover 1, AC at p.461.)"

33. Therefore, first of all the words that are used in the agreement or the statute should be of analogous nature in which event only they can be understood in their cognate sense viz., as originating from a common ancestor.

Writ Appeal Nos. 1345 of 2013 & connected cases : 35 :

34. The words used in Ext.P3 agreement are cess and royalties. In this context, it is necessary to understand the nature of the levy of royalty and cess. The term "Royalty" has come up for consideration of the Apex Court in Inderjeet Singh Sail and another v. Karam Chand Thapar and Others {(1995) 6 SCC 166}. In that judgment, the word "royalty" incorporated in an agreement conveying mining rights was understood by the Apex Court as an item of consideration due for future payments. This has been explained by the Apex Court in paragraphs 11 to 13 of the judgment, which reads thus;

11. It is manifest that four reasons have been advanced by the High Court to upset the judgment and decree of the trial court. These are (i) that deed Ex. D-5 was drafted as a formal document apparently by some lawyer and parties thereto were persons quite conversant with mining leases; and consequently with the meaning of the words `consideration' and `royalty'; (ii) the word `royalty' used in the document must be understood the way it is used and understood by the persons in the mining business; (iii) the consideration money was Rs 30,000 only as the endorsement of registration on the deed indicates and that was the total consideration; and (iv) in the plaint distinction has been kept between the words `consideration' and Writ Appeal Nos. 1345 of 2013 & connected cases : 36 :

`royalty' and so royalty could not be part of the consideration.

12. With respect we do not agree with any of those reasons. It may be true that the document Ex. D-5, written in English language, may have been prepared by a lawyer and was entered into between persons conversant with the vocabulary employed in mining leases. Yet these factors per se cannot conclude the matter that the word `royalty' used in the document was meant to be royalty as such. If intelligence and responsibility is to be attributed to the draftsman and the contracting parties for using the word `royalty' in that technical sense, then it cannot be imagined that they would have overlooked the status of the contracting parties inter se. We cannot thus assume that they were well versed in one aspect and not in the other. Strictly speaking, had the draftsman and the signatories to the deed meant `royalty' as such, then they could not have omitted to identify who had the sovereign prerogative or the State's part to play. The word `royalty' thus, in the deed was used in a loose sense so as to convey liability to make periodic payments to the assignor for the period during which the lease would subsist; payments dependent on the coal gotten and extracted in quantities or on despatch. We have therefore to construe document Ex. D-5 on its own terms and not barely on the label or Writ Appeal Nos. 1345 of 2013 & connected cases : 37 :

description given to the stipulated payments. Conceivably this arrangement could well have been given a shape by using another word. The word `royalty' was perhaps more handy for the authors to be employed for an arrangement like this, so as to ensure periodic payments. In no event could the parties be put to blame for using the word `royalty' as if arrogating to themselves the royal or sovereign right of the State and then make redundant the rights and obligations created by the deed.

13. The commodity goes by its value; not by the wrapper in which it is packed. A man is known for his worth; not for the clothes he wears. Royal robes worn by a beggar would not make him a king. The document is weighed by its content, not the title. One needs to go to the value, not the glitter. All the same, we do not wish to minimise the importance of the right words to be used in documents. What we mean to express is that if the thought is clear, its translation in words, spoken or written, may, more often than not, tend to be faulty. More so in a language which is not the mother tongue. Those faulted words cannot bounce back to alter the thought. Thus in sum and substance when the contracting parties and the draftsman are assumed to have known that the word `royalty' is meant to be employed to secure for the State something out of what the State Writ Appeal Nos. 1345 of 2013 & connected cases : 38 :

conveys, their employment of that word for private ensuring was not intended to confer on the assignor the status of the sovereign or the State, and on that basis have the document voided. Therefore, we are of the view that the word `royalty' was used in the deed misdescriptively and was really meant to cover an important item of the consideration due for future payments. Section 54 of the Transfer of Property Act clearly postulates that sale is a transfer of ownership in exchange for a price paid or promised to be paid or part paid and part promised. In either situation title to the property would get transferred. This, in our view, demolishes the first two reasons.

35. Again in the judgment of the Apex Court in State of H.P v. Gujarat Ambuja Cement Ltd., {(2005) 6 SCC 499}, the meaning of the term "royalty" was examined by the Apex Court with reference not only to the precedents but also to the law dictionaries and in paragraphs 44 to 46 and 52 to 56, it was held thus;

44.'Royalty' is not a term used in legal parlance for the price of the goods sold. It is a payment reserved by the grantor of a patent, lease of a mine or similar right, and payable proportionately to the use made of the right by the grantee as held in Titaghur Paper Mills Co. Ltd. case (supra).

Writ Appeal Nos. 1345 of 2013 & connected cases : 39 :

45.In its primary and natural sense 'royalty' in the legal world, is known as the equivalent or translation of 'jura regalia' or 'jura regin'. Royal rights and prerogatives of a sovereign are covered thereunder.

In its secondary sense, the word 'royalty' would signify, as in mining leases, that part of the reddendum, variable though, payable in cash or kind, for rights and privileges obtained. (See Inderjeet Singh Sial and Anr. v. Karam Chand Thaper and Ors. (1995 (6) SCC 166).

46. 'Royalty' is not a tax. Simply because the royalty is levied by reference to the quantity of the minerals produced and the impugned cess too is quantified by taking into consideration the same quantity of the mineral produced, the latter does not become royalty. The former is the rent of the land on which the mine is situated or the price of the privilege of winning the minerals from the land parted by the Government in favour of the mining lessee. The cess is a levy on mineral rights with impact on the land and quantified by reference to the quantum of mineral produced. The distinction, though fine, yet exists and is perceptible. (See The State of West Bengal and Anr. v. Kesoram Industries Ltd. and Ors. (JT 2004 (1) SC 375).

"52. "Royalty" is defined in Jowitt's Dictionary of English Law, 2nd Edn., at p. 1595, inter alia, as :

Royalty, a payment reserved by the grantor of a patent, lease of a mine or similar right, and payable proportionately to the use made of the right by the Writ Appeal Nos. 1345 of 2013 & connected cases : 40 : grantee. It is usually a payment of money, but may be a payment in kind, that is, of part of the produce of the exercise of the right. See Rent.

53. "Royalty" is defined in Wharton's Law Lexcion, 14th Edn. at p.893, as:

Royalty, payment to a patentee by agreement on every article made according to his patent : or to an author by a publisher on every copy of his book sold; or to the owner of minerals for the right of working the same on every ton or other weight raised.

54. The definition of "royalty" given in Black's Law Dictionary, 5th Edn., at p. 1195, is as follows:

Royalty. Compensation for the use of property, usually copyrighted material or natural resources, expressed as a percentage of receipts from using the property or as an account per unit produced. A payment which is made to an author or composer by an assignee, licensee or copyright holder in respect of each copy of his work which is sold, or to an inventor in respect of each article sold under the patent. Royalty is share of product or profit reserved by owner for permitting another to use the property. In its broadest aspect, it is share of profit reserved by owner for permitting another the use of property... In mining and oil operations, a share of the product or profit paid to the owner of the property...........

55. In H.R.S. Murthy v. Collector of Chittoor and Anr.

(AIR 1965 SC 177), this Court said that "royalty" normally connotes the payment made for the Writ Appeal Nos. 1345 of 2013 & connected cases : 41 :

materials or minerals won from the land.

56. In Halsbury's Laws of England, 4th Edn. in the volume which deals with "Mines, Minerals and Quarries", namely, volume 31, it is stated in paragraph 224 as follows:

224. Rents and royalties. An agreement for a lease usually contains stipulations as to the dead rents and other rent and royalties to be reserved by, and the covenants and provisions to be inserted in, the lease............................................................................

.....................................................................................

236. Royalties. A royalty, in the sense in which the word is used in connection with mining leases, is a payment to the lessor proportionate to the amount of the demised mineral worked within a specific period.

62. In paragraph 238 of the same volume of Halsbury's Laws of England it is stated:

238. Covenant to pay rent and royalties. Nearly every mining lease contains a covenant by the lessee for payment of the specified rent and royalties."

36. A reading of the aforesaid two judgments of the Apex Court would therefore show that royalty is a payment reserved by the granter of a patent, lease of a mine or similar right, and payable proportionately for the use of the right by the grantee.

The Apex Court has also clarified that royalty is not a tax. As held by the Apex Court, the Court cannot be guided merely by the Writ Appeal Nos. 1345 of 2013 & connected cases : 42 : nomenclature used in the agreement but by the intention of the parties. Therefore, royalty, as it is traditionally known, is a consideration reserved by an owner, who has granted a right to a grantee. In so far as these cases are concerned, the granter is the Government and the grantee is the 1st respondent and right granted to the grantee is the right to use the water. If the meaning of the term royalty is understood in the light of the principles laid down by the Apex Court, it does not admit of any doubt that the word signifies a contractual levy, payable by the grantee to the granter/owner. The meaning of the word "royalty" as already found by us with reference to the binding precedents, is a levy reserved by the granter and is payable by the grantee of the benefit. On the other hand, the meaning of the word "cess" as available in the Black's Law Dictionary, 7th Edn is "An assessment of tax". That the word "cess" means a tax is evident from the Apex Court judgment in Guruswamy v. State of Mysore (AIR 1967 SC 1512), which judgment has been followed in India Cements Ltd v. State of T.N {(1990) 1 SCC 12} also.

37. A comparison of the meaning of the word royalty and cess would therefore show that these are not words which are of Writ Appeal Nos. 1345 of 2013 & connected cases : 43 : analogous nature permitting these words to be understood in their cognate sense. In such a situation, we are of the considered opinion that the learned single Judge could not have imported the maxim noscitur a sociis to hold that cess is a tax and therefore royalty is also a tax.

38. Since royalty in these cases is only a contractual payment reserved by the granter and is not a levy in the nature of a tax, the question of the State being legislatively competent or incompetent to levy royalty on the water consumed at the hydel plant of the first respondent does not arise. Even if the words royalty and cess are interchangeably used, that is inconsequential, in so far as the nature of the levy of royalty is concerned. Therefore, this conclusion of the learned single Judge also cannot be sustained.

39. The learned single Judge also held that even if the levy is payable, such levy cannot have retrospective effect. This view also cannot be endorsed because once the 1st respondent has undertaken the liability to pay royalty as and when levied by the Government, Government is always at liberty to levy royalty from Writ Appeal Nos. 1345 of 2013 & connected cases : 44 : the time the benefit of the agreement was derived by the 1st respondent. Therefore, this contention also cannot be accepted.

40. Learned senior counsel for the 1st respondent argued that the controlled release of water from Anayirankal dam was made by the Board through Panniyar river depending upon the requirements of the Panniyar Power Project of the Board. According to him, this water is diverted by a weir across Panniyar river at Mukkudi to the Kuthungal Project and made use of these only because of the situs of the Kuthungal Project. This, according to the counsel, is only an incidental benefit and that to make them liable for controlled release, water should be released solely at their instance and for generation at their project and not otherwise. In our view, this argument has no substance. Parties are governed by a mutually agreed contract evidenced by Ext.P3. Agreement provides that for the additional advantage of controlled release derived by them, the agency is liable to pay charges as provided in the agreement. Agreement does not state that such controlled release should be at the instance of the 1st respondent and that it should be for their sole benefit. Instead, if the agency is a beneficiary of the controlled release of water, they Writ Appeal Nos. 1345 of 2013 & connected cases : 45 : are liable to pay for it. Admittedly, the 1st respondent is generating energy utilizing the controlled release of water from Anayirankal and so long as it is so, in view of Clause 14 of the Ext.P1, the 1st respondent cannot get itself absolved of that liability. Therefore, this contention is only to be rejected and we do so.

41. For the aforesaid reasons, we cannot accept the conclusion of the learned single Judge that the State was devoid of jurisdiction to realise any amount from the 1st respondent by way of royalty/cess on the water used for its Kuthungal Hydro Electric Project. However, a reading of Ext.P11 Government Order shows that royalty and cost of controlled release of water to the Kuthungal Hydro Electric Project is reckoned on the quantum of energy generated and shall be 10% of the energy tariff rate for the EHT consumers. As we have already seen, as per Ext.P1 Government Order dated 7/12/90, royalty is to be levied for the use of water, together with the tax and duties on generation of power as fixed by the Government/Board from time to time and have to be paid by the agency. Reading of this provision shows that royalty is for the use of water and the tax and duties is on the Writ Appeal Nos. 1345 of 2013 & connected cases : 46 : generation of power. The second paragraph of clause 14 provides that for the additional advantage derived by the agency by way of getting the controlled releases, the agency will have to pay to the Government or the Board, as the case may be, in tariff equivalent to the cost component for the controlled release. Clause 15 provides that for the purpose of levying royalty for the use of water, the quantity of water used should be assessed applying the formula incorporated therein. Clause 19 of Ext.P3 agreement also shows that royalty is for use of water.

42. Therefore, royalty under clause 14 of Ext.P1 Government Order should be levied assessing the quantity of water used applying Clause 15 of Ext.P1. However, in Ext.P11 royalty is levied on the quantum of energy generated. This, in our view, is inconsistent with Ext.P1 Government Order and Ext.P3 agreement which permits levy of royalty only for the use of water, which also should be based on the quantity of water as assessed by applying the formula specified in Clause 15 thereof and not on the quantity of energy generated.

43. Similarly, for the benefit of getting the controlled release of water, Government is free to levy on the agency, in Writ Appeal Nos. 1345 of 2013 & connected cases : 47 : tariff equivalent to the cost component for energy generated from the scheme. For this purpose, as is evident from clause 14 of Ext.P1 Government Order, what is payable by the 1st respondent is tariff equivalent to the cost component for the controlled release utilised by the grantee for the energy generated. Though at one stage, it was contended that 35% of the energy generated was utilising controlled release, in the counter affidavit filed, it is stated that it was 22.54%. While we agree that this figure cannot be a constant one, it is a fact that entire energy is not generated utilising controlled release of water. But, since the charges for controlled release as ordered in Ext.P11, and which was confirmed by the Government in Exts.P15 and P28, is on the entire energy generated, the demand is inconsistent with Exts.P1 and P3, we are unable to sustain the orders.

44. Accordingly, the judgment of the learned single Judge is set aside. For the aforesaid reasons, we set aside Exts.P11, P15 and P28 and direct that the Government shall pass fresh orders in the matter with notice to the 1st respondent and as expeditiously as possible, at any rate within 2 months of receipt of a copy of this judgment.

Writ Appeal Nos. 1345 of 2013 & connected cases : 48 :

45. Writ Appeal Nos.1345/13 and 18/14 are stand disposed of as above. No costs.

Writ Appeal Nos. 1355 of 2013, 116 of 2014 & Cross Objection Nos.96/13 & 18/14

46. These writ appeals are filed by respondents 1 and 2 respectively in OP.No.6880/2003, which was filed by M/s. Carborundum Universal Limited, the 1st respondent in these appeals.

47. In pursuance of Ext.P1 Government Order (referred to in our judgment in WA No.1345/13), the 1st respondent herein applied to set up a small hydel electric scheme and accordingly was issued Ext.P1(a) Government Order dated 18/1/91, allotting to it Maniyar Hydro Electric Project for execution and generating power subject to the terms and conditions in Ext.P1. Accordingly, on 18.5.1991, they entered into Ext.P2 agreement with the Board. In this agreement also, as in the case of Ext.P3 agreement in WA No.1345/13, Ext.P1 Government Order was incorporated as part thereof.

48. Clause 14 of the agreement providing for levy of royalty and charges for controlled release read as under; Writ Appeal Nos. 1345 of 2013 & connected cases : 49 :

"14. Royalty for the use of water together with the tax and duties on generation of power is fixed by Govt/KSEB from time to time have to be paid by CUMI to K.S.E.B. Maniyar Hydro Electric Project will utilise the existing head works benefit of the Maniyar Irrigation Dam of P.W.D. which is fed mainly by the controlled release of water from existing Moozhiar Power House of KSEB. In order to account for the additional advantage gained by way of getting such controlled release, CUMI will have to pay to KSEB the cost component for the controlled release utilised by the CUMI for the energy generated from the scheme. This will be in addition to the royalty of water to be paid. The charges for controlled release as above as well as royalty on water, will be reckoned on the quantum of energy generated and shall be ten percent of energy tariff rate for E.H.T consumers current from time to time for every unit of energy generated and shall be paid to the K.S.E.B."

49. On the basis of Clause 14 of Ext.P2 agreement and the provisions of Ext.P1 Government Order, royalty as well as charges for controlled release was levied on the 1st respondent. According to the appellants, the 1st respondent was paying amounts under protest and later objected to such demands which was rejected by Ext.P3 order dated 8/3/01 issued by the Electricity Board. Writ Appeal Nos. 1345 of 2013 & connected cases : 50 :

50. Again, they objected by filing Exts.P5 and P6 and orders were not passed on those objections. It was in these circumstances the writ petition was filed seeking to declare that the appellants have no authority or jurisdiction to levy, demand or collect any charges for controlled release of water or royalty from the 1st respondent in respect of the energy generated by them at its Maniyar Hydel Project.

51. The writ petition was contested by the appellants by filing their counter affidavits.

52. By judgment dated 3rd of April, 2013, following his findings in para 36 to 41 and 51 to 53 of the judgment in WP(C) No.4596/08, the learned single Judge set aside Ext.P3 and held that the Government is devoid of jurisdiction to realise any amount from the 1st respondent by way of royalty or other charges on the water used for the Maniyar Hydro Electric Project. It is aggrieved by this judgment, the respondents in the writ petition have filed these writ appeals.

53. At the same time complaining that their contentions were not dealt with by the learned single Judge, the 1st respondent has also filed Cross Objection Nos.96/13 & 18/14. Writ Appeal Nos. 1345 of 2013 & connected cases : 51 :

54. We heard the learned counsel for the appellants and also the learned senior counsel appearing for the 1st respondent, who has also filed the cross objections.

55. The judgment of the learned single Judge in WP(C) No.4596/08, which has been followed in this case, has already been set aside by us in our judgment in WA Nos.1345/13 and 18/14. Therefore, this judgment also deserves to be interfered with for that reason itself. However, the learned senior counsel appearing for the 1st respondent raised certain other contentions on the merits and we shall proceed to deal with those contentions.

56. The first contention raised by the learned senior counsel was that the Board is a creature of a statute and that its powers are circumscribed in the provisions of the Electricity (Supply) Act, 1948 which held the field at the time when Ext.P2 agreement was executed on 18/5/91. According to the learned senior counsel, the provisions of the Electricity (Supply) Act, did not authorise either the Board or the Government to levy cess, royalty or other charges on the water used by a generating company like the 1st respondent. He made reference to the Writ Appeal Nos. 1345 of 2013 & connected cases : 52 : various provisions of the Electricity (Supply) Act to buttress the contention and also the Apex Court judgment in V.T.Khanzode v. Reserve Bank of India (AIR 1982 SC 917) to contend that in the absence of specific conferment of power on the Board/Government to collect royalty, cess or other charges, such charges cannot be levied. We have considered this submission.

57. In our view, the provisions of the Electricity (Supply) Act, 1948 dealt with generation of electricity and the provisions of the Act did not prevent a Government or Board from entering into an agreement, agreeing to provide natural resources of water to a generating company for the generation of energy by setting up a hydel generation station against royalty or other charges payable by the grantee. Therefore, if under the contract, the Government agree to a private party like the 1st respondent that it shall make available water to a Hydro Electric Project for generation of energy and in consideration, royalty is required to be paid to the Government and that contractual right of the Government or the obligation of the generating company to pay are not affected by any of the provisions of the Electricity (Supply) Act, 1948. Therefore, the 1st respondent who has willingly entered into an Writ Appeal Nos. 1345 of 2013 & connected cases : 53 : agreement undertaking to pay royalty and other charges to the Government and after having enjoyed the benefit thereof, cannot now rely on the provisions of the Electricity (Supply) Act and contend that the Government or the Board have no power under the Electricity (Supply) Act to realise the charges that are contractually payable by them. Therefore, this contention of the learned senior counsel is unacceptable and is rejected.

58. The second contention raised by the learned senior counsel for the 1st respondent was that there was no controlled release to the Maniyar Hydro Electric Project and that therefore the charges levied on them for controlled release of water is unsustainable. We have already rejected such a contention raised by the 1st respondent in WA Nos.1345/13 and 18/14 and the reasons assigned by us should apply to this case also. Moreover, we are unable to accept this contention of the learned senior counsel for the reason that Clause 14 of Ext.P2 agreement provides for controlled release of water and the 1st respondent shall pay charges to the Board. If there was no controlled release of water, there was no reason why the 1st respondent should have entered into such an agreement taking over the liability to pay Writ Appeal Nos. 1345 of 2013 & connected cases : 54 : charges for the controlled release of water also. That apart, both in Exts.P5 and P6, the representations made by them objecting to the levy, they had no case that there was no controlled release of water. Therefore, by the above agreement and correspondence, the first respondent themselves have admitted that there is controlled release of water and therefore it is too late in the day for them to turn around and contend that there is no controlled release of water absolving them from the contractual obligations in Clause 14 of the agreement.

59. The third contention raised by the learned senior counsel for the 1st respondent was that by virtue of Section 218 of Kerala Panchayat Raj Act rivers in the State, except those notified in the Gazette, are vested in the Village Panchayat absolutely and that therefore the Government or Board cannot realise any cess, royalty or charge for any water that is used.

60. Section 218(1) of the Kerala Panchayat Raj Act reads thus;

"218. Vesting of water course, springs, reservoirs, etc., in Village Panchayats. (1) Notwithstanding anything contained in the Kerala Land Conservancy Act, 1957 (8 of 1958) or in any other law for the time being in force, all public Writ Appeal Nos. 1345 of 2013 & connected cases : 55 :

water courses (other than rivers passing through more areas, than the panchayat area which the Government may, by notification in the Gazette, specify), the beds and banks of rivers, streams, irrigation and drainage channels, canals, lakes, back waters and water courses and all standing and flowing water, springs, reservoirs, tanks, cisterns, fountains, wells, kappus, chals, stand pipes and other water works including those used by the public to such an extent as to give a prescriptive right to their use whether existing at the commencement of this Act or afterwards made, laid or erected and whether made, laid or erected at the cost of the panchayat or otherwise, and also any adjacent land, not being private property appertaining thereto shall stand transferred to, and vest absolutely in the Village Panchayat.

61. Though, at the first blush, this contention would sound attractive, a closer scrutiny would show it to be otherwise. Section 3 of the Kerala Irrigation and Water Conservation Act, 2003 reads as follows:

"3. Water courses and water in water courses to be Government property- Notwithstanding anything to the contrary contained in any other law for the time being in force, or in any custom or usage or in any contract or other instrument Writ Appeal Nos. 1345 of 2013 & connected cases : 56 :

but subject to the provisions of section 218 of the Kerala Panchayat Raj Act, 1994 (13 of 1994) and section 208 of the Kerala Municipality Act, 1994 (20 of 1994) all water courses and all water in such water courses in the State shall be the property of the Government and the Government shall be entitled to conserve and regulate the use of such water courses and the water in all those water courses for the purposes of irrigation and the generation of Electricity and for matters connected therewith or for both.

62. A reading of this provision shows that by a subsequent legislation, Government of Kerala have reserved unto itself ownership of all water courses and all water in such water courses by declaring that it shall be the property of the Government. The Government have further declared that it shall be entitled to conserve and regulate the use of such water courses and the water in all those water courses for the purposes of irrigation and the generation of electricity and for matters connected therewith or for both. In the light of this provision, Section 218 of the Kerala Panchayat Raj relied on by the learned counsel also cannot be of any assistance to the 1st respondent.

Writ Appeal Nos. 1345 of 2013 & connected cases : 57 :

63. Counsel then contended that the cess and charges are collected by the Board and not by the Government and therefore also levy is illegal. In our view, Clause 14 of Ext.P2 agreement is a complete answer to this contention. A reading of the last sentence of clause 14 shows that the charges that are due from the 1st respondent shall be paid to the KSEB. Therefore, the 1st respondent is liable to make payments to the KSEB and the KSEB is entitled to realise the amounts due from the 1st respondent.

We therefore do not find any substance in the contentions raised in the cross objections.

WA Nos.1355/13 and 116/14 are allowed. The judgment of the learned single Judge in OP No. No.6880/03 is set aside and the OP is dismissed. Cross Objection Nos.96/13 and 18/14 will also stand dismissed. No costs.

Sd/-

ANTONY DOMINIC JUDGE Sd/-

ANIL K. NARENDRAN JUDGE Rp //True Copy// PA TO JUDGE

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