Document Fragment View

Matching Fragments

4.2. The sole purpose of the project was to commit the capacity of the project and generate and supply electricity, exclusively, to the Tamil Nadu Generation and Distribution Corporation Limited (hereinafter referred as 'TANGEDCO').

4.3. The claimant and the TANGEDCO entered into the amended and restated Power Purchase Agreement on 20.11.1996 (hereinafter referred as 'PPA'). As per the terms of the PPA, the claimant is required to purchase lignite for the project exclusively from the respondent under the Fuel Supply Agreement (hereinafter referred as 'FSA'). The sale of lignite under the FSA and the use of the same to generate and sell electricity to the TANGEDCO is a single and composite transaction, and that PPA and FSA are back to back Agreements, wherein, the claimant is acting as an intermediary between the TANGEDCO and the respondent. https://www.mhc.tn.gov.in/judis Arb.O.P.No.444 of 2021 & Arb.O.P.(Com.Div)No.5 of 2022 4.4 In and around December 2015, due to the increase in price of lignite supplied by the respondent to the claimant, the Merit Order Ranking of the claimant was lowered. The Merit Order Ranking was introduced by the Tamil Nadu Electricity Regulatory Commission (hereinafter referred as 'TNERC') by issuing a Tariff Order. Under the Merit Order Ranking regime, TNERC places plants in the State of Tamil Nadu in the order of their variable cost with the cheapest plant placed at the highest level and the most expensive plant placed at the lowest level. In view of the lower ranking of the claimant's plant in the Merit Order Ranking, TANGEDCO lowered the dispatch to the project. This situation prevailed in the Financial Years 2015-16, 2016-17 and 2017-18, owing to which, the claimant was unable to purchase the quantum of lignite assured under the Annual Aggregate Quantity (hereinafter referred as 'AAQ').

Therefore, he contended that though there were clear interlinkages between the FSA and the PPA, the Tribunal failed to consider this aspect in toto and rejected the claim of the claimant.

7.2. The next contention that was put forth by the learned Senior Counsel is that the Tribunal has erroneously held that there was no 'Force Majeure event' as the Merit Order governs electricity and not the supply of lignite. The definition of 'Force Majeure event' includes 'any law, order or ordinance of the Central or State Government that prohibits performance of the obligations hereunder'. The learned Senior Counsel would submit that the reduction in the dispatch to the project by the TANGEDCO was obviously due to the reason that the Merit Order Ranking of the claimant was lowered. Therefore, according to him, the reduction in the off-take of lignite was due to the Merit Order Ranking regime introduced by the TNERC which constituted a 'Force Majeure event' under Article 11.1(i) of the FSA. Hence, he would strongly https://www.mhc.tn.gov.in/judis Arb.O.P.No.444 of 2021 & Arb.O.P.(Com.Div)No.5 of 2022 contend that the finding of the Tribunal that there was no 'Force Majeure event' is liable to be set aside.

7.3. The learned Senior Counsel would also stress upon the contention that the Tribunal without considering the claimant's pleading, material evidence and contractual provisions held that the claimant ought to have issued notice of 'Force Majeure' within 5 days. At this instant, he would point out that the notice of 'Force Majeure' can only be issued when TANGEDCO informs the claimant about the Merit Order Ranking leading to reduction in the power to be supplied by the claimant to the TANGEDCO, and not otherwise. In fact, for the Financial Years 2015-16 and 2016-17 notice was issued by the claimant to the respondent, the moment when TANGEDCO informed the claimant about the reduction in the off-take of power. For the Financial Year 2017-18, notice of nomination of AAQ itself specified that the quantity being nominated is subject to the reduction in the off-take of power, which may take place on account of occurrence of 'Force Majeure event'. https://www.mhc.tn.gov.in/judis Arb.O.P.No.444 of 2021 & Arb.O.P.(Com.Div)No.5 of 2022 7.4. The learned Senior Counsel submitted that the Tribunal without considering the submissions of the claimant and in contra to the provisions of the FSA, Tariff Orders issued by TNERC and PPA, held that the claimant failed to mitigate the losses that arose from the 'Force Majeure event'. While arriving at such a conclusion, the Tribunal has held that the claimant should have purchased the entire AAQ quantity, produced electricity and sold the excess electricity to third parties. Having failed to do so, the claimant failed to mitigate the losses from the 'Force Majeure event'. According to him, this conclusion ignores Article 2.3 (a) of the PPA, which specifically stipulates that the claimant can sell electricity to third parties only in case the TANGEDCO commits an event of default. It is nobody's case that the TANGEDCO has committed an event of default. Further, the understanding was always that the claimant would sell its power exclusively to the TANGEDCO and not to third parties as evident from the letter dated 20.06.1994 written by the TANGEDCO to the Ministry of Power. Further, according to him, the finding of the Tribunal in Paragraph Nos.48 and 49 of the Arbitral Award that Regulation 4 of TNERC Regulations permits the claimant to sell https://www.mhc.tn.gov.in/judis Arb.O.P.No.444 of 2021 & Arb.O.P.(Com.Div)No.5 of 2022 power to third parties is not at all correct. Regulation 4 deals with the 'Tariff setting principles' and sub-regulation (vii) of Regulation 4 stipulates that generating companies shall be allowed to sell to other buyers without losing their claim on committed capacity charges. He would also rely upon the Paragraph No.33 of the Arbitral Award and submit that the Tribunal has taken into consideration that the PPA mandates (i) the claimant to commit its entire capacity of 250 MW to TANGEDCO, (ii) the claimant is bound to comply with the dispatch instructions and supply electricity to TANGEDCO in accordance with such instructions and (iii) there can be 365 such dispatch instructions in a year and such instructions can also vary from hour to hour. Therefore, he would submit that a cogent reading of the above facts would indicate that the claimant is bound to commit its entire capacity to TANGEDCO and has a choice to sell electricity to third parties only if TANGEDCO commits an event of default. Since in the instant case, the TANGEDCO has not committed an event of default, the claimant could not have sold the electricity to third parties and thereby, could not have mitigated the losses that arose from the 'Force Majeure event'. The Tribunal by https://www.mhc.tn.gov.in/judis Arb.O.P.No.444 of 2021 & Arb.O.P.(Com.Div)No.5 of 2022 holding that the claimant ought to have mitigated the losses, ignored vital evidence and submissions on record.

10. Claimant has a right under the Regulations of TNERC to sell excess electricity to 3rd parties.

11. Claimant has not made reasonable efforts to mitigate the losses.

54. Therefore, Issue No.1 is held against the Claimant holding that the Claimant has failed to prove the shortfall in offtake of nominated quantity of lignite was caused by the operation of Tariff Order 2012 and Merit Order Ranking Regime and that inability of TANGEDCO to adequately offtake power from the project which constituted a Force Majeure event, hence does not attract liability of Liquidated Damages under the provisions of Fuel Supply Agreement (FSA)." 15.2. The contention of the claimant is that since Merit Order Ranking was introduced by the TNERC, there was a 'Force Majeure event' that prevented it from performing its obligations. According to the claimant, TNERC has been issuing the Merit Order Ranking from time to time and based on that only, TANGEDCO purchases the power. Merit Order Ranking will be determined by the Authorities based on various factors, one such factors is the price of the lignite. Due to the increase in the price of lignite supplied by the respondent to the claimant, Merit Order Ranking of the claimant was lowered. Therefore, the claimant https://www.mhc.tn.gov.in/judis Arb.O.P.No.444 of 2021 & Arb.O.P.(Com.Div)No.5 of 2022 contends that since the Merit Order Ranking of the claimant was lowered, the TANGEDCO lowered the dispatch to the Project, which resulted, in a 'Force Majeure event' and the claimant was unable to supply power to TANGEDCO and lift the AAQ of lignite as per the terms of FSA. Thus, the claimant submitted that since there was 'Force Majeure event', the claimant is not liable to pay any liquidated damages to the respondent.