TRANSMISSION CORPORATION OF ANDHRA PRADESH LTD. AND OTHERS versus M/S. GMR VEMAGIRI POWER GENERATION LTD. AND ANOTHER

Citation: [2018] 10 S.C.R. 390 · Decided: 16-02-2018 · Supreme Court of India · Bench: R.F. NARIMAN · Disposal: Appeal(s) allowed

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Judgment (excerpt)

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SUPREME COURT REPORTS
[2018] 10 S.C.R.
TRANSMISSION CORPORATION OF ANDHRA PRADESH
LTD. AND OTHERS
v.
M/s. GMR VEMAGIRI POWER GENERATION LTD. AND
ANOTHER
   (Civil Appeal No. 8747 of 2014)
FEBRUARY 16, 2018
[R. F. NARIMAN AND NAVIN SINHA, JJ.]
Contract – Power Purchase Agreement (PPA) –  Interpretation
of – Predecessor of the appellant, the Andhra Pradesh State
Electricity Board, in 1995 invited bids for establishing short gestation
gas/Naphtha/fuel oil based power stations – Respondent was a
successful bidder and had set up a power generation plant –
Pursuant to the same, a PPA was executed between the parties on
31.03.1997 under which Naphtha was the primary fuel and gas an
alternate fuel – In 2003, PPA was amended making gas the primary
fuel and Naphtha an alternate fuel – The PPA underwent further
amendment in 2007, restricting the term ‘fuel’ to ‘natural gas only’
– Respondent had sought permission to use Regasified Liquefied
Natural Gas (RLNG) as fuel for generating power as RLNG is a
form of natural gas – Whether the word ‘fuel’ as used in clause of
the PPA means ‘natural gas only’ or includes RLNG – Held: In the
event of any ambiguity arising, the terms of the contract will have
to be interpreted by taking into consideration all surrounding facts
and circumstances, including correspondence exchanged, to arrive
at the real intendment of the parties, and not what one of the parties
may contend subsequently to have been the intendment or say as
included afterwards – The respondent’s letters to appellant
specifically requested for permission to use RLNG to supplement
shortfall in gas, requesting to acknowledge its usage – Appellant in
its reply explicitly stated that under the agreement no other fuel
except natural gas could be used and that RLNG was never
contemplated in the definition of fuel declining to accept the spot
supply agreement for RLNG supplies, citing the cost of power per
unit from the same (RLNG) more costly in comparison to per unit
cost from natural gas – Therefore, the intention of the parties under
the agreement, as amended from time to time, was to generate power
[2018]  10  S.C.R. 390
                                                 390
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from fuel reasonably priced, so as to ultimately make available power
to the consumers at reasonable rates – The choice of fuel as natural
gas only has, therefore, to be understood as being confined to
natural gas only in its natural form – The respondent was well aware
that RLNG was never intended to be included in the definition of
natural gas as understood by parties, notwithstanding that it may
be a variant of natural gas – Petroleum and Natural Gas Regulatory
Board Act, 2006 – s.2(za)(i).
Deeds and Documents – Commercial Document –
Interpretation of – Held:  A commercial document cannot be
interpreted in a manner to arrive at a complete variance with what
may originally have been the intendment of the parties – Such a
situation can only be contemplated when the implied term can be
considered necessary to lend efficacy to the terms of the contract –
If the contract is capable of interpretation on its plain meaning
with regard to the true intention of the parties it will not be prudent
to read implied terms on the understanding of a party, or by the
court, with regard to business efficacy
Allowing the appeal, the Court
HELD: 1. It will not be a safe method to interpret a contract
by picking out one clause of the same defining fuel, apply a
technical scientific meaning to it and then conclude that being a
form of natural gas, Regasified Liquefied Natural Gas (RLNG)
was intended to be impliedly included in the definition of fuel.
The terms of a contract have to be given their plain meaning with
regard to the intendment of the parties as to what was intended
to be included and what was not intended to be included, as distinct
from an express exclusion. The commercial parlance test will
also have to be applied as to whether those in the business
consider the two forms of gas as synonymous and interchangeable.
Quite obviously the answer has to be in the negative considering
the importation of RLNG, additional processes involved and the
consequent higher costs involved. [Para 19] [403-A-C]
2. In the event of any ambiguity arising, the terms of the
contract will have to be interpreted by taking into consideration
all surrounding facts and circumstances, including correspondence
exchanged, to arrive at the real intendment of 

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