/2022 INSC 0108/
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REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION 
CIVIL APPEAL NO.1844 OF 2020
SOUTHERN POWER DISTRIBUTION POWER 
COMPANY LIMITED OF ANDHRA PRADESH 
(APSPDCL) & ANR.   ...APPELLANT(S)
VERSUS
M/S HINDUJA NATIONAL POWER 
CORPORATION LIMITED & ANR.       .... RESPONDENT(S)
J U D G M E N T 
B.R. GAVAI, J.
1. The   present   appeal   filed   by   the   appellants   –
Distribution   Companies   (hereinafter   referred   to   as   “the
appellants   ­   DISCOMS”)   challenges   the   judgment   and   order
dated 7 th
 January, 2020, passed by the Appellate Tribunal for
Electricity, New Delhi (hereinafter referred to as “the APTEL”)
in Appeal No. 41 of 2018, thereby allowing the appeal filed by
the   respondent   No.1   –   M/s   Hinduja   National   Power

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Corporation Limited (hereinafter referred to as “HNPCL”).   By
the   impugned   judgment   and   order,   the   APTEL   has   directed
the   Andhra   Pradesh   Electricity   Regulatory   Commission
(hereinafter referred to as “the State Commission”) to dispose
of   O.P.   No.21   of   2015   filed   by   HNPCL   for   determination   of
capital cost and O.P. No.19 of 2016 filed by the appellants –
DISCOMS   for   approval   of   amended   and   restated   Power
Purchase   Agreement   (hereinafter   referred   to   as   “PPA”)
(Continuation Agreement) on merits. 
2. The   facts,   in   brief,   giving   rise   to   the   present   appeal
are as under:
3. The erstwhile Andhra Pradesh State Electricity Board
(hereinafter   referred   to   as   “APSEB”)   entered   into   a
Memorandum   of   Understanding   (hereinafter   referred   to   as
“MoU”) with HNPCL on 17 th
 July, 1992.  As per the said MoU,
APSEB   transferred  all  the  licenses,  approvals,   clearance   and
permits, fuel linkage, water required for establishment of the
power   project   at   Visakhapatnam   in   the   erstwhile   State   of

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Andhra   Pradesh,   to   HNPCL   to   generate   and   supply   the
electricity to APSEB.  
4. An   initial   PPA   was   entered   into   between   APSEB   and
HNPCL   on   9 th
  December,   1994.     On   25 th
  July,   1996,   the
Central   Electricity   Regulatory   Commission   (CERC)   granted   a
Techno   Economic   Clearance   for   the   power   project   for   an
estimated cost of Rs.4628.11 crores (Rs. 4.45 crores per MW).
5. Owing   to   certain   change   in   conditions,   the   parties
agreed   to   amend   the   initial   PPA.     Accordingly,   an   Amended
and   Restated   PPA   dated   15 th
  April,   1998,   was   entered   into
between   APSEB   and   HNPCL.       Between   the   years   1998   and
2007,   the   Amended   and   Restated   PPA,   for   sale   of   power   by
HNPCL   to   APSEB,   was   not   implemented.     Subsequently,   in
the year 2007, HNPCL approached the Government of Andhra
Pradesh to revive the power project mainly structuring it as a
merchant   plant,   offering   25%   of   the   power   generated   to   the
State   and   balance   75%   power   to   third   parties.     However,   it
appears that there were negotiations between the parties, and
the   State   Government   had   offered   to   purchase   100%   power

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generated   from   the   plant   of   HNPCL   and   that   HNPCL   had
agreed   to   it.     The   same   would   be   clearly   evident   from   the
material   placed   on   record,   to   which   we   will   be   referring
hereinafter. 
6. The   material   placed   on   record   would   reveal   that   in
the year 2011­2012, the Central Power Distribution Company
of   Andhra   Pradesh   Limited   (hereinafter   referred   to   as
“APCPDCL”) for and on behalf of four Distribution Companies
of   Andhra   Pradesh   (hereinafter   referred   to   as   “APDISCOMS”)
had   initiated   the   process   for   procurement   of   power   under
Case­1   long   term   bidding   route,   to   meet   the   base   load
requirements   of   APDISCOMS   from   the   years   2014­2015
onwards.     In   the   said   bidding   process,   HNPCL   participated
and had successfully emerged as the second lowest bidder (L­
2   bidder).       After   the   completion   of   the   bidding   process,
APCPDCL   had   filed   O.P.   No.55   of   2013   before   the   State
Commission   for   approval   of   the   tariffs   emerged   in   the   said
bidding process.   However, the State Level Expert Committee
for   evaluation   of   Case­1   bidding   (hereinafter   to   as   “Bid

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Evaluation   Committee”)  in  its  meeting  dated  28 th
  September,
2012,   had   noted   that,   the   State   Government   had   informed
that   the   entire   capacity   of   HNPCL   was   encumbered   to   the
State   of   A.P./APDISCOMS   and   was   not   available   for
consideration   under   the   tender.     Accordingly,   the   Bid
Evaluation   Committee   had   discarded   HNPCL   from   the
bidding process.  
7. In   the   meanwhile,   there   was   a   correspondence
between HNPCL and the State Government in the year 2012,
with   regard   to   the   steps   to   be   taken   for   the   development   of
the   project   and   requesting   State   support   for   scheduled
commissioning   of   the   project.     In   this   regard,   HNPCL
addressed a letter dated 6 th
 August, 2012 to the then Hon’ble
Chief   Minister   of   the   erstwhile   State   of   Andhra   Pradesh,
thereby   conveying   its   intention   to   develop   the   project   and
seeking   State’s   support.     Vide   communication   dated   26 th
December, 2012, the State Government addressed a letter to
HNPCL accepting its proposal and agreeing to purchase 100%
power   from   the   project   of   HNPCL   as   per   the   Amended   and

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Restated   PPA.     Vide   communication   dated   14 th
  January,
2013,   HNPCL   agreed   to   supply   100%   power   to   the   State­
Distribution  Companies  at the  tariff to  be determined by  the
State Commission. 
8. The   HNPCL   vide   communication   dated   16 th
  May,
2013,   addressed   to   the   appellants   –   DISCOMS,   inter   alia ,
provided   therein   the   details   with   regard   to   the   estimated
capital cost of the power project to the tune of Rs.6098 crores
as against Rs.5545 crores that was given in June, 2010.  The
appellants   –   DISCOMS   vide   communication   dated   17 th
  May,
2013,   expressed   their   reservations   about   the   capital   cost
furnished  by   HNPCL  and  reserved  their   rights  to   contest  the
same before the State Commission.  
9. On   the   same   day,   i.e.,   17 th
  May,   2013,   a
Memorandum of Agreement (hereinafter referred to as “MoA”)
was   entered   into   between   the   APDISCOMS   and   HNPCL,
thereby deciding to continue the Amended and Restated PPA
dated   15 th
  April,   1998,   on   the   terms   and   conditions   set   out
therein.     In   pursuance   of   the   aforesaid   MoA,   a   Fuel   Supply

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Agreement (“FSA” for short) dated 26 th
 August, 2013, came to
be   entered   between   HNPCL   and   Mahanadi   Coalfield   Limited
for coal supply for the said project. 
10. On   12 th
  March,   2014,   a   petition   being   O.P.   No.21   of
2015,   came   to   be   filed   by   HNPCL   before   the   State
Commission   for   determination   of   capital   cost   for   the   project
and   for   determination   of   the   tariff   for   such   generation   and
sale of electricity by HNPCL to APDISCOMS.
11. Thereafter,   on   2 nd
  June,   2014,   the   Andhra   Pradesh
State   Reorganisation   Act,   2014,   (hereinafter   referred   to   as
“Reorganisation   Act”)   came   into   effect   vide   which   the
erstwhile   State   of   Andhra   Pradesh   was   bifurcated   into   two
States,   i.e.,   the   State   of   Andhra   Pradesh   and   the   State   of
Telangana.
12. On   28 th
  July,   2015,   HNPCL   filed   an   Addendum
Application   in   O.P.   No.21   of   2015,   thereby   enhancing   the
capital cost of the project to Rs.8,087 crore.   This capital cost
was disputed by the APDISCOMS.

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13. On   11 th
  January,   2016,   the   first   unit   of   the   Power
project   (520   MW)   was   declared   Commercial   Operation   Date
(COD) by HNPCL.   Vide interim order dated 1 st
  March, 2016,
the State Commission fixed the provisional tariff at the rate of
Rs.3.61   per   unit   for   supply   of   electricity   by   HNPCL   to   the
APDISCOMS.  
14. On   30 th
  March,   2016,   HNPCL   filed   I.A.   No.5   of   2016
in   O.P.   No.21   of   2015,   for   payment   of   variable   charges   and
fixed   charges   at   Rs.1.80   per   unit   and   Rs.2.16   per   unit
aggregating to Rs.3.96 per unit at 80% availability.  
15. On   28 th
  April,   2016,   distinct   Power   Distribution
Corporations   were   created   including   the   appellants   –
DISCOMS   i.e.   Southern   Power   Distribution   Power   Company
Limited   of   Andhra   Pradesh   (“APSPDCL”)   and   Eastern   Power
Distribution Company of Andhra Pradesh (“APEPDCL”). These
corporations   succeeded   the   APSEB,   which   had   entered   into
the   Amended   and   Restated   PPA   dated   15 th
  April,   1998   with
HNPCL.       As   such,   the   Continuation   Agreement   to   the

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Amended   and   Restated   PPA   was   entered   into   between   the
appellants – DISCOMS and HNPCL on 28 th
 April, 2016.  
16. On 11 th
 May, 2016, the appellants – DISCOMS filed a
petition   being   O.P.   No.19   of   2016   before   the   State
Commission   for   approval   of   the   Continuation   Agreement
dated 28 th
  April,  2016,  read  with   the  Amended  and   Restated
PPA dated 15 th
 April, 1998.   
17. The   State   Government   vide   order   dated   1 st
  June,
2016,   accorded   approval   for   purchase   of   100%   power   from
HNPCL.   
18. On 3 rd
 July, 2016, the second unit of the HNPCL (520
MW) came to be declared COD by HNPCL.   
19. Vide   order   dated   6 th
  August,   2016,   the   State
Commission re­determined the provisional tariff at the rate of
Rs.3.82   per   unit,   payable   by   the   appellants   –   DISCOMS   for
the power supplied by HNPCL.  
20. On   15 th
  May,   2017,   the   State   Commission   after
hearing the parties on merits, reserved the judgment in both

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the   petitions,   i.e.,   in   O.P.   No.19   of   2016   and   O.P.   No.21   of
2015.  
21. It is further to be noted that in the appeal arising out
of   interlocutory   proceedings,   the   APTEL   vide   order   dated   1 st
June, 2017, directed the State Commission to dispose of O.P.
No.19   of   2016   and   O.P.   No.21   of   2015   on   or   before   14 th
August,   2017.       The   said   period   came   to   be   extended   from
time   to   time,   the   last   of   such   extension   was   granted   till   31 st
January, 2018, vide order dated 10 th
 January, 2018.  
22. Thereafter,   on   4 th
  January,   2018,   the   appellants   –
DISCOMS   filed   two   Interlocutory   Applications,   viz.,   (i)   I.A.
No.1   of   2018   in   O.P.   No.19   of   2016   for   withdrawal   of   O.P.
No.19   of   2016   together   with   initial   PPA;   and   (ii)   I.A.   No.2   of
2018   in   O.P.   No.21   of   2015   for   disposal   of   O.P.   No.21   of
2015.  
23. Vide   order   dated   31 st
  January,   2018,   the   State
Commission   allowed   withdrawal   of   O.P.   No.19   of   2016   filed
by   the   appellants   –   DISCOMS   seeking   approval   of   PPA   and

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consequentially dismissed O.P. No.21 of 2015 filed by HNPCL
seeking determination of tariff.  
24. Aggrieved by the same, an appeal being Appeal No.41
of   2018,   came   to   be   filed   by   HNPCL   before   the   APTEL.     The
said   appeal   came   to   be   admitted   by   the   APTEL   vide   order
dated 26 th
  February, 2018.   The APTEL vide order dated 16 th
March,   2018,   passed   in   I.A.   No.211   of   2018   in   the   said
appeal,   as   an   ad   hoc   arrangement,   directed   the   parties   to
maintain status quo as prevalent prior to 31 st
 January, 2018.
This   was   without   prejudice   to   the   rights   and   contentions   of
the parties in the main appeal, i.e., Appeal No.41 of 2018.
25. It is also to be noted that the order dated 16 th
 March,
2018, passed by the APTEL in I.A. No.211 of 2018 in Appeal
No.41   of   2018,   came   to   be   challenged   by   the   appellants   –
DISCOMS before the High Court of Andhra Pradesh by filing
Writ Petition being  Writ  Petition  No.10814 of  2018.   Another
writ petition being Writ Petition No.13689 of 2018 came to be
filed   by   the   appellants   –   DISCOMS   challenging   the   order   of
the   APTEL   dated   26 th
  February,   2018,   admitting   the   appeal

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filed by HNPCL.  The said writ petitions came to be dismissed
by   the   High   Court   of   Andhra   Pradesh   vide   order   dated   2 nd
May, 2018.  
26. In   the   meantime,   on   16 th
  April,   2018,   HNPCL   had
filed   an   Execution   Petition   being   Execution   Petition   No.3   of
2018   before   the   APTEL   seeking   execution   of   the   order   dated
16 th
  March,   2018,   passed   by   the   APTEL   in   I.A.   No.211   of
2018   in   Appeal   No.41   of   2018.     Certain   directions   were
passed by the APTEL in the said Execution Petition vide order
dated 31 st
 May, 2018.
27. The   appellants   –   DISCOMS   had   also   challenged   the
order  dated  16 th
  March,  2018, passed  by   the APTEL, by  way
of Civil Appeal No.5772 of 2018 before this Court. This Court
vide order dated 4 th
  June, 2018, refused to interfere with the
said order, since it was an interim order.  However, this Court
directed the appeal to be decided expeditiously without taking
into   consideration   the   observations,   in   the   order   impugned
before it, as conclusive.  

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28. Vide   impugned   judgment   and   order   dated   7 th
January, 2020, the APTEL allowed the appeal filed by HNPCL
and   directed   the   State   Commission   to   dispose   of   O.P.   No.21
of 2015 and O.P. No.19 of 2016.  Being aggrieved thereby, the
appellants – DISCOMS have approached this Court by way of
the present appeal.  
29. On   14 th
  July,   2020,   this   Court   passed   the   following
order in the present appeal:  
“The appeal is admitted.  
Until   further   orders,   the   impugned
order   passed   by   the   Appellate   Tribunal   for
Electricity New Delhi in Appeal No. 41/2019
shall remain stayed. 
List for hearing after four weeks.”
30. An   application   being   I.A.   No.67061   of   2020   for
modification of the said order dated 14 th
  July, 2020, came to
be filed by HNPCL.   This Court vide order dated 21 st
  August,
2020, modified the order as under:
“Heard. 

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By   order   dated   14.07.2020,   we   directed
the   stay   of   impugned   order   passed   by   the
Appellate   Tribunal   for   Electricity,   New
Delhi, in Appeal No.41/2019. 
We   clarify   that   there   shall   be   no   stay   of
the   order   dated   16.03.2018   passed   by   the
Appellate   Tribunal   for   Electricity,   New
Delhi, providing for interim measure. Order
accordingly. 
The   instant   interlocutory   application
stands disposed of accordingly”
31. It   appears   from   the   record   that   during   the
intervening   period,   certain   Interlocutory   Applications   have
been   filed   from   both   the   sides,   wherein,   the   appellants   –
DISCOMS are seeking vacation of the interim order dated 21 st
August,   2020,   whereas   HNPCL   is   seeking   implementation   of
the   order   dated   21 st
  August,   2020.     The   record   would   show
that   the   matter   has   been   adjourned   from   time   to   time   and
was finally heard by this Court on 20 th
 January, 2022.  
32. We   have   heard   Shri   C.S.   Vaidyanathan,   learned
Senior   Counsel   appearing   on   behalf   of   the   appellants   –
DISCOMS   and   Dr.   Abhishek   Manu   Singhvi   and   Shri   M.G.

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Ramachandran,   learned   Senior   Counsel   appearing   on   behalf
of HNPCL.
33. Shri   C.S.   Vaidyanathan,   learned   Senior   Counsel
appearing on behalf of the appellants – DISCOMS, submitted
that   the   APTEL   has   grossly   erred   in   holding   that   the
appellants   –   DISCOMS   were   not   entitled   to   apply   for
withdrawal   of   O.P.   No.19   of   2016,   filed   for   grant   of   approval
of the PPA.   It is submitted that unless there was prohibition
in   law,   the   appellants   were   very   much   within   their   right   to
apply for withdrawal of the O.P. filed by them.  In this regard,
Shri Vaidyanathan relied on the following authorities:
(i) Boal   Quay   Wharfingers   Ltd.   v.   King’s   Lynn
Conservancy Board 1
  and 
(ii) Hulas   Rai   Baij   Nath   v.   Firm   K.B.   Bass   and
Co. 2
34. Shri   Vaidyanathan   further   submitted   that   the   PPA
was not a valid document until it was approved by the State
Commission   under   Section   86(1)(b)   of   The   Electricity   Act,
1  (1971) 1 WLR 1558 [Court of Appeal, England)
2  (1967) 3 SCR 886

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2003 (hereinafter referred to as “the Act of 2003”).  He further
submitted   that   under   Section   21   of   The   Andhra   Pradesh
Electricity   Reform   Act,   1998   (hereinafter   referred   to   as   “the
Reform   Act”),   any   agreement   relating   to   generating,
transmitting,   distribution   or   supply   of   energy   without   the
previous   consent   in   writing   of   the   Commission   was   void   ab
initio.     He   submitted   that   by   the   impugned   judgment,   the
APTEL   has,   in   effect,   granted   HNPCL   a   decree   of   specific
performance of a contract, which is void ab initio.   He further
submitted   that   MoA   dated   17 th
  May,   2013   and   the
Continuation   Agreement   dated   28 th
  April,   2016   were
themselves contrary to the National Tariff Policy issued under
Section   3   of   the   Act   of   2003   and   Regulation   5.2(b)   of   the
Andhra   Pradesh   Electricity   Regulatory   Commission   (Terms
and   conditions   for   determination   of   tariff   for   supply   of
electricity by a generating company to a distribution licensee
and   purchase   of   electricity   by   distribution   licensees)
Regulation,   2008   (Regulation   No.1   of   2008)   (hereinafter
referred   to   as   ‘the   Tariff   Regulations’)   issued   by   the   State

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Commission.     As   such,   the   direction   by   the   APTEL,   to
continue   to   get   the   electricity   supply   from   HNPCL,   being
contrary   to   the   statutory   provision,   would   not   be   tenable   in
law. 
35. Shri   Vaidyanathan   submitted   that   the   present
project does not fall under any of the categories mentioned in
Regulation 5.2 of the Tariff Regulations, which aspect has not
been taken into consideration by the APTEL.  
36. Shri Vaidyanathan further submitted that the finding
of the APTEL, that HNPCL had made huge investments on the
basis   of   the   assurance   given   by   the   appellants   –   DISCOMS
that   they   will   purchase   100%   power   from   it,   is   itself
erroneous.     He   submitted   that   the   initial   project   of   HNPCL
was   lying   in   cold   storage   from   1996   to   2007.     He   submitted
that   in   the   year   2007,   HNPCL   had   attempted   to   revive   the
project   as   a   Merchant­power   plant.       He   submitted   that   the
project   of   HNPCL   had   also   attained   financial   closure   in   the
year 2010. He further submitted that before the acceptance of
the proposal of HNPCL by the State Government, HNPCL had

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already   completed   upto   93%   of   the   project.     It   is   therefore,
submitted   that   the   finding   that   huge   investments   made   by
HNPCL   were   on   the   basis   of   the   representation   by   the   State
Government   is   totally   erroneous.     In   any   case,   he   submits,
that   the   appellants   –   DISCOMS   are   independent   authorities
and   not   bound   by   the   decision   of   the   State.     He   submitted
that   under   the   scheme   of   the   Act   of   2003,   the   appellants   –
DISCOMS   cannot   purchase   the   power   without   the   prior
approval of the State Commission.  He submits that the State
has no role to play in the said matter.  It is submitted that, in
any   case,   the  appellants  –   DISCOMS   could   not   be  bound   by
the representation made by the State Government.   
37. Shri Vaidyanathan further submits that since the re­
initiation   of   the   project   in   the   year   2007   by   HNPCL   is   as   a
Merchant­power   plant,   it   can   very   well   sell   the   power   to   the
third parties in the market.   He submitted that however, the
appellants  –  DISCOMS  cannot   be  compelled  to   purchase  the
power   from   HNPCL,   which   will   be   at   a   very   high   price.     He
submitted   that   the   capital   cost   of   the   project,   which   was

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initially   estimated   at   Rs.4628.11   crores   has   now   gone   up   to
Rs.8087   crores,   which   will   have   a   direct   effect   on   the
purchase   price   of   the   electricity   by   the   appellants   –
DISCOMS.     He   therefore   submits   that   if   the   appellants   –
DISCOMS   are   directed   to   purchase   the   electricity   at   such   a
high price, the loss would be ultimately to the consumers and
as such, the direction given by the APTEL is also against the
public interest.  
38. Per   contra,   Dr.   Abhishek   Manu   Singhvi   and   Shri
M.G.   Ramachandran,   learned   Senior   Counsel   appearing   on
behalf   of   HNPCL   submitted   that   the   order   passed   by   the
APTEL   is   such,   which   does   not   at   all   harm   the   appellants   –
DISCOMS.       Dr.   Singhvi   submitted   that   by   the   impugned
order,  the  APTEL has  only  directed  the  State   Commission  to
dispose   of   O.P.   No.21   of   2015   filed   by   HNPCL   for
determination of capital cost and O.P. No.19 of 2016 filed by
the   appellants   –   DISCOMS   for   approval   of   Amended   and
Restated PPA on merits.  

20
39. Dr. Singhvi submits that the APTEL has given sound
and   elaborate   reasons   and   as   such,   no   interference   is
warranted in the present appeal.  
40. Shri   M.G.   Ramachandran,   learned   Senior   Counsel,
submitted that when withdrawal of an application is sought,
which has the effect of frustrating the contract and defeating
the   defendant’s   right,   the   appellants   cannot   be   said   to   have
the   right   to   withdraw   the   proceedings.     He   relied   on   the
following authorities in support of this proposition.  
(i) Madhu Jajoo v. State of Rajasthan 3
 
(ii) Kiran Girhotra & Ors. v. Raj Kumar & Ors. 4
(iii) M.   Radhakrisna   Murthy   v.   Government   of
A.P. & Ors. 5
(iv) Smt. Ajita Debi v. Musst. Hossenara Begum 6
(v) Mathuralal v. Chiranji Lal 7
(vi) The   Registrar,   Manonmaniam   Sundaranar
University v. Suhura Beevi 8
41. Shri   Ramachandran   has   further   submitted   that   a
right of withdrawal is not an absolute right and that once the
3  AIR 1999 Raj 1
4  (2009) 164 DLT 483
5  (2001) 3 ALD 330 (DB)
6  AIR 1977 Cal 59
7  AIR 1962 Raj 109
8  AIR 1995 Mad 42

21
judgment is reserved there cannot be any further application
seeking withdrawal.   In support of this proposition, he relied
on the following authorities: 
(i) Arjun Singh v. Mohindra Kumar 9
(ii) Bharati Behera v. Jhili Prava Behera 10
 
(iii) Rabia   Bi   Qasim   v.   Countrywide   Consumer
Financial Services Limited 11
(iv) Pujya   Sindhi   Panchayat   v.   Prof.   C.L.
Mishra 12
(v) Yash Mehra v. Arundhati Mehra 13
(vi) Dharani   Sugars   and   Chemicals   Limited   v.
TMN Engineering Industry 14
42. Dr.   Singhvi,   learned   Senior   Counsel,   further
submitted   that,   as   a   matter   of   fact,   HNPCL   desired   to   start
the project as a Merchant­power plant.   It is however, on the
insistence   of   the   State   of   Andhra   Pradesh   that   HNPCL   was
compelled to supply 100% of power generated to the State. He
further   submitted   that   it   is   evident   from   the   record   that
HNPCL   had   participated   in   the   competitive   bidding   process
9  AIR 1964 SC 993
10  W.P. No.26254 of 2013 decided by Orissa High Court on 18.04.2014
11  ILR 2004 KAR 2215
12  AIR 2002 Rajasthan 274 (DB)
13  (2006) 132 DLT 166
14  CRP PD No.3309 to 3312 of 2011 and MP No.1 of 2011 decided by the Madras High Court on 
30.08.2017

22
conducted   by   the   APCPDCL.     It   was   the   decision   of   the   Bid
Evaluation   Committee,   to   not   consider   the   bid   submitted   by
HNPCL on the premise that the entire generation capacity  of
HNPCL’s   project   was   already   encumbered   to   the   State   of
Andhra   Pradesh   under   the   Amended   and   Restated   PPA   of
1998.   He further submitted that not only this but the entire
communication placed on record would show that it was the
State   Government,   which   had   expressed   its   interest   to
purchase   100%   power   from   HNPCL’s   project   as   per   the
Amended and Restated PPA dated 15 th
 April, 1998.  
43. He   further   submitted   that   on   the   reorganisation   of
the erstwhile State of Andhra Pradesh and its bifurcation into
two States, i.e., the State of Andhra Pradesh and the State of
Telangana;   though   the   State   of   Telangana   had   demanded
54%   of   the   power   from   HNPCL’s   project,   the   Government   of
Andhra Pradesh insisted HNPCL to supply 100% of the power
to the State of Andhra Pradesh. He therefore submits that the
APTEL has rightly, on appreciation of the material placed on
record,   held   that   it   was   on   the   representation   of   the   State

23
Government that the HNPCL had made huge investments for
the   project.     He   submitted   that   the   contention   of   the
appellants   –   DISCOMS,   that   if   the   power   generated   by   the
HNPCL is purchased by them, it will be at a very heavy cost,
is  totally   erroneous.   He   submitted  that,  as   a  matter   of   fact,
when as per the interim orders passed by the APTEL and this
Court,   the   appellants   –   DISCOMS   could   have   purchased   the
power   from   HNPCL   at   the   rate   of   Rs.3.82   per   unit,   the
appellants   –   DISCOMS   are   purchasing   the   power   at   a   much
higher   rate   from   the   generators,   which   were   ranked   much
below HNPCL in the merit order. He further submits that the
conduct   of   the   appellants   –   DISCOMS   is   totally   mala   fide.
When   under the interim orders of this Court as well as of the
APTEL,   they   were   bound   to   purchase   the   power   at   much
lesser   price   than   compared   to   the   rate   at   which   they   are
purchasing,   they   continued   to   purchase   power   at   much
higher   price.     He   therefore   submits   that   such   an   act,   apart
from  being   violative  of  the  order  of  this  Court,  is  contrary  to
the public interest.  

24
44. Dr. Singhvi further submits that on account of   mala
fide   attitude   of   the   appellants   –   DISCOMS,   it   is   not   only
HNPCL,   but   also   the   public   at   large,   who   are   the   sufferers.
He   submits   that   huge   investment   of   thousands   of   crores   of
rupees   is   lying   idle.     He   further   submits   that   apart   from
generating   employment   for   more   than   1000   people,   the
generation   project,   which   is   fully   operational,   would   also
provide   electricity   in   the   State   of   Andhra   Pradesh.   He
submitted   that   the   contention   of   the   appellants   –   DISCOMS
that they had decided to withdraw the application on account
of huge capital cost and the power being available in excess is
also   factually   incorrect.     He   submits   that   recently   the
appellants   have   entered   into   an   MoU   with   SEMBCORP
Energy India in December, 2021 for generation of 625 MW of
electricity.   He submits that insofar as the price at which the
electricity would be purchased by the appellants – DISCOMS
from   the   generation   unit   of   HNPCL   would   be   determined   by
the   State   Commission,   which   will   have   to   take   into
consideration various aspects while approving the capital cost

25
of   the   project   as   well   as   while   doing   the   exercise   of
determination   of   tariff.  The   learned   Senior   Counsel  therefore
submits   that   no   interference   is   warranted   in   the   present
appeal. 
45. The   facts   in   the   present   case   are   not   much   in
dispute. It is not in dispute that on 17 th
  July, 1992, an MoU
came   to   be   entered   between   APSEB   and   HNPCL,   vide   which
APSEB   had   transferred   all  the   licences,   approvals,   clearance
and   permits,   fuel   linkage,   water   required   for   the   project   to
HNPCL.  It is also not in dispute that on 9 th
 December, 1994,
an   initial   PPA   came   to   be   entered   between   HNPCL   and
APSEB.     On   25 th
  July,   1996,   the   CERC   granted   a   Techno
Economic   Clearance   for   the   power   project   for   an   estimated
cost of Rs.4628.11 crores (Rs.4.45 crores per MW).   It is also
not   in   dispute   that   APSEB   and   HNPCL   mutually   agreed   to
amend 1994 PPA and accordingly, an Amended and Restated
PPA came to be executed on 15 th
 April, 1998.  It is also not in
dispute that from 1996 till 2007, the project remained in cold
storage.     In   the   year   2007,   the   promoters   of   HNPCL

26
approached   the   then   Hon’ble   Chief   Minister   of   the   erstwhile
State of Andhra Pradesh. It appears that certain discussions
took   place   between   the   then   Hon’ble   Chief   Minister   of
erstwhile   State   of   Andhra   Pradesh   and   the   promoters   of
HNPCL.  On 5 th
 January, 2007, Mr. G.P. Hinduja addressed a
communication   to   the   then   Hon’ble   Chief   Minister   of   the
erstwhile State of Andhra Pradesh.  It will be relevant to refer
to the following  excerpt from the said communication, which
reads thus:
  “As per our discussion I am summarizing
herein   below   our   proposal   for   your   ready
reference: 
1. Vizag   Power   project   will   be   mainly
structured   as   a   Merchant   plant   and
implemented   in   a   period   manner   with
an   initial   capacity   of   1040   MW   and
increasing   upto   400   MW   in   a   phased
manner. 
2. GoAP   will   sign   a   MoU   with   the   Project
Sponsors to provide: 
- Title   deeds   for   1122.38   acres   of   land
against   balance   payment   of   Rs.16.48
cr.
- Transfer of remaining land of 1921.34
acres   against   payment   of   an   amount
of Rs. 67.63 cr. 

27
- Infrastructure   support   including   for
construction, power and water. 
- Recommend   to   GoI   mega   status   for
the project. 
- Revive   the   Coal   supply   and
Transportation Agreements. 
- Facilitate environment clearance from
MOEF. 
- Sanction   of   all   other   applicable   State
Approvals. 
3. GoAP will have the first right of refusal,
in   the   MoU,   to   purchase   25%   of   the
power at regulated tariff.”
46. It could  thus be seen that when  HNPCL proposed to
revive the project in the year  2007, it was mainly  structured
as   a   Merchant   plant,   wherein   the   Government   of   Andhra
Pradesh   was   to   have   the   first   right   of   refusal,   to   purchase
25% of the power at regulated tariff.  
47. It is also not in dispute that APCPDCL on behalf of all
the   four   APDISCOMS   (viz.,   Central   Power   Distribution
Company   of   Andhra   Pradesh   Limited,   Southern   Power
Distribution   Company   of   Andhra   Pradesh   Limited,   Northern
Power Distribution Company of Andhra Pradesh Limited and
Eastern   Power   Distribution   Company   of   Andhra   Pradesh
Limited)   had   conducted   bidding   process   for   procurement   of

28
power   of   2000   MW   +/­   20%   under   Case­1   to   meet   the   base
load   requirements   of   APDISCOMS   from   the   year   2014­2015
onwards.     It   is   also   not   in   dispute   that   in   the   said   bidding
process,   HNPCL   had   also   submitted   its   bid   and   successfully
emerged   as   L­2   bidder.     After   completion   of   the   bidding
process,   APCPDCL   had   applied   for   approval   of   the   tariff   at
which   the   power   was   to   be   purchased   from   the   successful
bidders   in   the   said   process.     It   will   be   relevant   to   refer   to
paragraph  4(u)  of  the  order  dated  13 th
  August,  2013,  passed
by   the   State   Commission   in   O.P.   No.   55   of   2013,   filed   by
APCPDCL on behalf of all the four APDISCOMS, which reads
thus: 
 “u)  In   the   minutes   of   meeting   held   on
28 th
  September   2012,   the   Bid
Evaluation   Committee   noted   that
"The   Principal   Secretary,   Energy
informed   the   Evaluation   Committee
that   the   entire   capacity   of   Hinduja
National   Power   Corporation   Limited
(HNPCL)   is   encumbered   to   the   state
of   A.P.   /DISCOMs   of   A.P.   and   hence
not   available   for   consideration   under
this   tender.   Hence,   HNPCL   must   be
taken   out   of   the   bid   process   and
APERC   must   be   informed

29
accordingly.     Hence   the   Committee
took   the   note   of   it   and   decided   to
separate   HNPCL   from   the   bid
process”
48. It   could   thus   be   seen   that   though   HNPCL   had
successfully   emerged   as   the   L­2   bidder   in   the   open   bidding
process, it was at the instance of the State of Andhra Pradesh
that   the   Bid   Evaluation   Committee   had   discarded   the   bid   of
HNPCL, on the ground that the entire capacity of HNPCL was
encumbered to the State of Andhra Pradesh/APDISCOMS. 
49. It will also be relevant to refer to the following excerpt
from  the letter dated 26 th
  December, 2012, addressed by the
Principal   Secretary   to   Government,   Energy   Department,   to
HNPCL:
“This   Is   to   Invite   your   attention   to   the
above   cited   letter   intimating   the
implementation   of   the   coal   fired   power
project   (1040   MW)   by   you   at
Visakhapatnam   and   supply   of   power
therefrom.   In   this   regard,   HNPCL   has
sought   certain   support   so   as   to   achieve
scheduled   commissioning   of   the   Project
commencing   in   July   2013.   On   this
matter I am to clarify that Government
of   Andhra   Pradesh   reiterates   its

30
Interest   in   purchasing   100%   power
(through   APDISCOMs)   from   the   said
project, as already contemplated in the
restated   PPA   entered   into   between
APSEB   and   HNPCL   in   1998   based   on
the   MOU   in   1992   on   the   broad
conditions mentioned in the PPA signed
in 1998, except to the extent they may
stand   modified   due   to   Impact   of
change   in   laws/rules   and   regulatory
standards   guiding  such  power   projects
post 1998.  
2.  In   this   background,   the   Government
of   Andhra   Pradesh   hereby   agrees   to
facilitate   the   implementation   of   the   power
project to achieve the timeline for schedule
commissioning.   The   Government   has
also   decided   to   direct   the   APDlSCOMs
as   the   successor   entities   of   APSEB   to
enter into a continuation Agreement to
the   PPA   of   1998   With   HNPCL   to   this
effect. ”
[emphasis supplied]
50. A   perusal   of   the   said   letter   dated   26 th
  December,
2012,   would   reveal   that   the   Government   of   Andhra   Pradesh
has   reiterated   its   interest   in   purchasing   100%   of   power
(through   APDISCOMS)   from   the   said   project,   as   already
contemplated   in   the   restated   PPA   entered   into   between

31
APSEB   and   HNPCL   in   1998   based   on   the   MoU   of   1992.     No
doubt   that   it   mentions   that   the   same   shall   be   except   to   the
extent   they   may   stand   modified   due   to   impact   of   change   in
laws/rules   and   regulatory   standards   guiding   such   power
projects post 1998. The said letter would also reveal that the
Government   had   decided   to   direct   the   APDISCOMS   as   the
successor   entities   of   APSEB   to   enter   into   a   continuation
agreement to the PPA of 1998 with HNPCL to the said effect.
It   will   also   be   relevant   to   note   that   in   the   said   letter   it   is
observed that the State Government will take necessary steps
within   three   months   for   execution   of   PPA   and   provision   of
Transmission   System   for   Start­up   Power   and   Power
Evacuation.    In  the said  letter, the  State  had  also  agreed  for
providing   assistance   in   obtaining   statutory
clearances/approvals   from   State/local   authorities   within   the
timeline for scheduled commissioning of Project. 
51. In response to the aforesaid letter, HNPCL addressed
a   communication   dated   14 th
  January,   2013,   to   the   State
Government,   thereby   expressing   its   concurrence   to   the

32
proposal   given   by   the   Government   of   Andhra   Pradesh   of
procuring  entire power from the Project.   Vide the said letter
dated   14 th
  January,   2013,   HNPCL   requested   the   State
Government to provide all the necessary support required for
taking the requisite approvals from the State Commission for
tariff determination based on the actual project cost.  
52. A  further  communication  dated  16 th
  May, 2013, was
addressed   by   HNPCL   to   the   appellants   ­   DISCOMS.     By   the
said letter, HNPCL had estimated the project cost to the tune
of  Rs.6098  crores.    The  said  project  cost  was  worked  out  on
the   basis   of   the   order   passed   by   the   CERC   dated   4 th
  June,
2012, providing a Benchmark Capital Cost (Hard cost) model
for   Thermal   Power   Stations   with   Coal   as   Fuel   for   tariff
determined by the Commission under Section 62 of the Act of
2003.
53. The   appellants   –   DISCOMS   vide   communication
dated 17 th
 May, 2013, recorded that the documents of capital
cost   of   the   Project   were   received   without   prejudice   to   the
rights   of   APDISCOMS   to   contest   the   cost   of   the   project   on

33
every component before the State Commission at appropriate
stage and that the receiving of the capital cost document did
not constitute that the APDISCOMS had agreed/accepted the
same without demur.  
54. On   the   same   day,   i.e.,   17 th
  May,   2013,   an   MoA   for
continuation   of   the   Amended   and   Restated   PPA   dated   15 th
April,   1998,   came   to   be   executed   between   APDISCOMS   and
HNPCL.  It   will   be   relevant   to   refer   to   clauses   E   and   F  of  the
said MoA dated 17 th
 May, 2013, which read thus:
“E.   HNPCL   shall   agree   that   the   entire
capacity  of the project and all the units
of the power station shall at all times be
for the exclusive benefit of the DISCOMs
and   the   DISCOMs   shall   have   the
exclusive   right   as   well   as   obligation   to
purchase   the   entire   capacity   from   the
project.   HNPCL   shall   not   grant   to   any
third   party   or   allow   any   third   party   to
obtain   any   entitlement   to   the   Available
Capacity   and/or   scheduled   energy.   In
case DISCOMs do not avail power up to
the   Available   Capacity   provided   by
HNPCL,   DISCOMs   shall   pay   to   HNPCL
the capacity charges for such unavailed
Available Capacity. 
Notwithstanding   the   above,   in   case
DISCOMS   do   not   avail   power   up   to   the
Available   Capacity   provided   by   HNPCL,

34
HNPCL   shall   have   the   option   to   sell
such   Available   Capacity   not   availed   by
DISCOMS   to   any   third   party   or   require
the   payment   of   capacity   charges   from
DISCOMS   towards   such   unavailed
Available   Capacity   not   sold   to   third
parties.   DISCOMs   shall   not   be   required
to   pay   capacity   charges   for   such
capacity sold to third parties.
F.   Transmission   line/system   for   start­up
power   and   power   evacuation   from   the
Project   will   be   provided   by   DISCOMs
through   APTRANSCO   in   time   so   as   to
ensure   availability   of   power   evacuation
facility   at   the   time   of   COD   of   Unit   1.
DISCOMs assure that power evacuation
shall   be   done   through   APTRANSCO
without any delay.”
55. It could thus be seen that in the MoA dated 17 th
 May,
2013, it was agreed that the entire capacity of the project and
all the units of the power station shall at all times be for the
exclusive benefit of the DISCOMS and the DISCOMS were to
have the exclusive right as well as the obligation to purchase
the   entire   capacity   from   the   project.   Vide   the   said   MoA,
HNPCL   was   restrained   from   granting   to   any   third   party   or
allowing   any   third   party   to   obtain   any   entitlement   to   the
available   capacity   and/or   scheduled   energy.     It   was   further

35
agreed   that   in   case   DISCOMS   do   not   avail   power   up   to   the
Available Capacity provided by HNPCL, the DISCOMS were to
pay   HNPCL,   the   capacity   charges   for   such   un­availed
Available   Capacity.     No   doubt,   that   in   case   the   DISCOMS
failed to avail power up­to the Available Capacity provided by
HNPCL,   an   option   was   available   to   HNPCL   to   sell   such
Available   Capacity,   not   availed   by   DISCOMS,   to   any   third
party. It was also agreed that the DISCOMS were not required
to   pay   capacity   charges   for   such   capacity   sold   to   third
parties.   As   per   the   said   MoA,   the   Transmission   line/system
for start­up power and power evacuation from the project was
to   be   provided   by   DISCOMS   through   Transmission
Corporation of Andhra Pradesh (APTRANSCO) in time so as to
ensure  availability  of  power   evacuation   facility  at  the  time  of
COD of Unit­1.   It is also not in dispute that in pursuance of
the   execution   of   the   said   MoA,   HNPCL   entered   into   an   FSA
with   Mahanadi   Coalfield   Limited   for   supply   of   coal   for   the
project. 

36
56. Pursuant   to   the   execution   of   the   said   MoA,   an
application   being   O.P.   No.21   of   2015   came   to   be   filed   by
HNPCL before the State Commission on 12 th
 March, 2014, for
determination   of   Capital   Cost   of   the   coal   fired   power   station
of   1040   MW   (2   x   520   MW)   capacity   in   the   district   of
Visakhapatnam.
57. Pursuant   to   these   events,   the   Reorganisation   Act
came   into   effect   on   2 nd
  June,   2014,   thereby   bifurcating   the
erstwhile   State   of   Andhra   Pradesh   into   the   State   of   Andhra
Pradesh   and   the   State   of   Telangana.     It   is   the   contention   of
HNPCL   that   after   the   bifurcation   of   the   erstwhile   State   of
Andhra   Pradesh,   though   the   State   of   Telangana   demanded
54% of the power from the project, the Government of Andhra
Pradesh  insisted HNPCL to  supply   100%  of the  power  to  the
State of Andhra Pradesh.
58. It   is   not   in   dispute   that   HNPCL   filed   an   Addendum
Application in O.P. No.21 of 2015 on 28 th
 July, 2015, thereby
showing   the   capital   cost   of   the   project   to   have   increased   to
Rs.8087 crores.  

37
59. When O.P. No.21 of 2015, was listed before the State
Commission on 26 th
  September, 2015, the State Commission
passed the following order:
“ Sri   P.   Shiva   Rao,   learned   Standing
Counsel   for   the   respondents   filed   counter
on   behalf   for   the   respondents   and   sought
for   further   time   to   respond   to   the   further
material   filed   by   the   petitioner   by   way   of
addendum   before   the   Commission.   Sri   P.
Shiva   Rao,   learned   Standing   Counsel   for
the respondents also represented that they
are   filing   an   application   to   dispense   with
the   earlier   Consultant   as   the   respondents
appointed   their   own   Consultant.   Hence,
for   further   response   of   the   respondents
and   rejoinder   of   the   petitioner   to   the
counter   filed   by   tile   respondents   and   for
further   hearing   on   the   question   of
Consultant including on the application for
dispensing   with   the   earlier   Consultant.
Posted   to   03­10­2015   at   11   AM.   Both   the
learned   counsel   also   represented   that
there is no issue of jurisdiction involved in
the matter.”
60. It   is   also   not   in   dispute   that   the   first   unit   of   the
power project of HNPCL (520 MW) was declared COD on 11 th
January, 2016.

38
61. Further,   it   is   not   in   dispute   that   the   State
Commission by  an order dated 1 st
  March, 2016, directed the
appellants  –   DISCOMS   to   pay   an   interim   tariff  at   the   rate  of
Rs.3.61   per   unit   to   HNPCL.     By   the   said   order,   the   State
Commission also clarified that such interim tariff was without
prejudice to the rights and contentions of both parties in the
main petition, i.e., O.P. No.21 of 2015.
62. After the bifurcation of the erstwhile State of Andhra
Pradesh   into   the   State   of   Andhra   Pradesh   and   the   State   of
Telangana,   on   28 th
  April,   2016,   a   Continuation   Agreement
came   to   be   signed   between   the   appellants   –   DISCOMS   and
HNPCL.   A   perusal   of   the   recital   in   the   said   Continuation
Agreement   dated   28 th
  April,   2016   would   reveal   that   the
Government   of  Andhra  Pradesh   represented  by  the  erstwhile
APSEB   had   expressed   the   desire   to   establish   a   coal­based
Thermal   Power   Project   at   Visakhapatnam   and   had   selected
the   consortium   of   Ashok   Leyland   Limited,   a   company
incorporated   in   India   and   Mission   Energy   Company,   a
California,   USA   corporation,   to   set   up   a   joint   venture   for

39
establishing   a   thermal   power   station.   The   said   Continuation
Agreement   dated   28 th
  April,   2016,   also   refers   to   the   MoU   of
1992   (dated   17 th
  July,   1992),   PPA   of   1994   (dated   9 th
December,   1994),   the   Amended   and   Restated   PPA   of   1998
(dated   15 th
  April,   1998),   the   correspondence   between   the
State   of   Andhra   Pradesh   and   HNPCL,   and   MoA   between   the
erstwhile   State   of   Andhra   Pradesh   and   HNPCL   dated   17 th
May, 2013.  It will be relevant to refer to the following part of
the Continuation Agreement dated 28 th
 April, 2016:
“3)  The   Parties   acknowledge   and   agree
that   the   Procurers   have   replaced   the
APSEB   in   all   respects   with   regard   to
the 1998 PPA and shall execute such
other   or   further   documents   and/or
take   such   steps,   as   are   necessary
and/or incidental, in order to give full
and   complete   effect   to   such   transfer
of   contracts,   deeds,   agreements   and
other instruments of whatever nature
to the Procurers.
4) The Procurers hereby  agree that they
are jointly and separately liable for all
obligations under the Agreement.
5) Subject   to   Clause   3   hereof   and
pending   the   execution   of   such   other
or   further   documents   as   envisaged
under   Clause   3   hereof,   the   Parties

40
hereto   are   entering   into   this
Continuation   Agreement   to   the   1998
PPA   and   confirm,   agree   to   the
following: 
(a) The   1998   PPA   shall   stand
amended   as   mentioned   hereunder
and   as   indicated   in   the   Annexure
attached   hereto,   which   Annexure
shall   constitute   an   integral   part   of
this Continuation Agreement. 
(b) The   1998   PPA   and   the   MoA
shall   stand   modified   or   amended   to
the   extent   provided   herein.   All   other
terms and conditions of the 1998 PPA
including   the   obligations   of   the
Parties   as   stated   thereunder   shall
continue to be binding on the Parties.
This Continuation Agreement and the
1998   PPA   shall   together   constitute
one and the same agreement and the
provisions   of   this   Continuation
Agreement shall form an Integral part
of   the   1998   PPA.   However,
notwithstanding the foregoing, should
any   provisions   of   this   Continuation
Agreement   be   at   variance   or   in
conflict   with   any   of   the   provisions   of
the   1998   PPA   or   the   MoA,   the
provisions   of   this   Continuation
Agreement shall prevail.”
63. It   could   thus   clearly   be   seen   that   the   appellants   –
DISCOMS have clearly represented that they had replaced the

41
APSEB   in   all   respects   with   regard   to   the   1998   PPA   and   had
agreed to execute all further documents and take such steps
as   are   necessary   in   order   to   give   full   and   complete   effect   to
such   transfer   of   contracts,   deeds,   agreements,   etc.     The
appellants – DISCOMS have also clearly agreed that the 1998
PPA   (i.e.   the   Amended   and   Restated   PPA   dated   15 th
  April,
1998 )   shall   stand   amended   as   mentioned   in   the   said
Continuation  Agreement   dated  28 th
  April,  2016.    It  has   been
specifically averred that the Continuation Agreement and the
1998   PPA   shall   together   constitute   one   and   the   same
agreement.  
64. Immediately   after   the   said   Continuation   Agreement
was   entered   into   between   the   appellants   –   DISCOMS   and
HNPCL, the appellants – DISCOMS filed an application being
O.P. No.19 of 2016 under Section 86(1)(b) of the Act of 2003
for grant of approval of PPA.   The said application contained
the   entire   history   narrated   herein   above   leading   up   to   the
execution   of   the   Continuation   Agreement   dated   28 th
  April,
2016.  The prayer clause in the said application reads thus:

42
“ PRAYER
32. Therefore,   it   is   prayed   that   the
Hon’ble   Commission   may   be   pleased   to
grant   approval/consent   for   the   initialed
Continuation   Agreement   to   the   PPA   dated
15.04.1998   together   with   Amended   &
Restated   PPA   dated   15.04.1998   of
HNPCL.”
65. The   State   Government   vide   order   dated   1 st
  June,
2016,   accorded   approval   for   purchase   of   100%   power   from
HNPCL.   On   3 rd
  July,   2016,   the   second   unit   of   HNPCL   (520
MW) was  declared COD.   Vide order   dated 6 th
  August, 2016,
the   State   Commission,   after   hearing   the   counsel   for   the
parties, directed the appellants – DISCOMS to pay an interim
tariff   at   the   rate   of   Rs.3.82   per   unit   to   HNPCL   from   1 st
August,   2016   for   the   power   received   by   them.   This   was   to
operate until further orders passed by the State Commission.
66. It is also not in dispute that after elaborate hearing in
both   the   petitions   i.e.   O.P.   No.21   of   2015   and   O.P.   No.19   of
2016,   the   State   Commission   reserved   the   matters   for   orders
on 15 th
 May, 2017.  It is also not in dispute that in an appeal
between   the   parties   arising   out   of   interlocutory   proceedings,

43
the APTEL had directed the State Commission to decide O.P.
No.19   of   2016   and   O.P.   No.21   of   2015   expeditiously   and   on
or   before   14 th
  August,   2017.     The   said   period   came   to   be
extended   from   time   to   time,   the   last   of   such   extension   was
granted till 31 st
 January, 2018, vide order dated 10 th
 January,
2018. 
67. At this juncture, the appellants – DISCOMS filed two
Interlocutory   Applications   on   4 th
  January,   2018,   viz.,   (i)   I.A.
No.1   of   2018   in   O.P.   No.19   of   2016   for   withdrawal   of   O.P.
No.19   of   2016   together   with   initial   PPA;   and   (ii)   I.A.   No.2   of
2018   in   O.P.   No.21   of   2015   for   disposal   of   O.P.   No.21   of
2015.
68. Vide   order   dated   31 st
  January,   2018,   passed   by   the
State   Commission,   which   was   impugned   before   the   APTEL,
the   State   Commission   allowed   withdrawal   of   O.P.   No.19   of
2016   filed   by   the   appellants   ­   DISCOMS   and   consequently
dismissed O.P. No.21 of 2015 filed by HNPCL.  
69. As   discussed   herein   above,   being   aggrieved,   HNPCL
filed  Appeal  No.41  of 2018 before  the APTEL, which  came to

44
be admitted by the APTEL on 26 th
  February, 2018.   It is also
not in dispute that the APTEL passed an interim order dated
16 th
  March,   2018   in   I.A.   No.211   of   2018   in   Appeal   No.41   of
2018, on an ad hoc arrangement basis, thereby directing the
parties   to   maintain   status   quo   as   prevalent   prior   to   31 st
January, 2018.   It is also not in dispute that both the orders
passed   by   the   APTEL,   i.e.,   order   dated   16 th
  March,   2018
directing maintenance of status quo as prevalent prior to 31 st
January,   2018   and   order   dated   26 th
  February,   2018,
admitting   Appeal   No.41   of   2018,   were   assailed   before   the
High Court of Andhra Pradesh by way of Writ Petitions being
Writ Petition No. 10814 of 2018 and Writ Petition No.13689 of
2018 respectively.   However, the same were dismissed by the
High Court of Andhra Pradesh by order dated 2 nd
 May, 2018.
  
70. It   is   also   not   in   dispute   that   in   the   meantime,
Execution   Petition   No.   3   of   2018   was   filed   by   HNPCL   before
the APTEL seeking execution of order dated 16 th
 March, 2018,
passed by the APTEL in I.A. No.211 of 2018 in Appeal No.41
of 2018. 

45
71. The appellants – DISCOMS had also approached this
Court by way of Civil Appeal No.5772 of 2018, challenging the
interim   order   passed   by   the   APTEL   dated   16 th
  March,   2018.
However,   this   Court   refused   to   interfere   with   the   said   order
and directed the APTEL to decide the appeal pending before it
expeditiously   without   taking   into   consideration   the
observation in the impugned order as conclusive.   
72. Vide   the   impugned   judgment   and   order   dated   7 th
January, 2020, the Appeal No.41 of 2018, filed by HNPCL has
been allowed by the APTEL, the correctness of which is under
challenge in the present proceedings.
73. It could thus clearly be seen that though HNPCL had
initially   proposed   to   revive   its   project   in   the   year   2007   as   a
Merchant­power   plant   and   had   proposed   to   give   the
Government   of   Andhra   Pradesh   first   right   of   refusal,   in   the
MoU, to purchase 25% of the power at regulated tariff, it was
at   the   instance   of   the   State   of   Andhra   Pradesh   that   it   had
agreed   to   supply   100%   power   to   the   State   through
APDISCOMS.     It   could   clearly   be   seen   from   the   record   that

46
though   HNPCL   had   participated   in   the   bidding   process
conducted   by   the   APCPDCL   in   the   year   2011­2012   and
though HNPCL had successfully emerged as L­2 bidder in the
said bidding process, it was on account of the decision of the
Bid   Evaluation   Committee,   that   HNPCL   was   discarded   from
the   bidding   process   since   the   entire   generation   capacity   of
HNPCL   was   encumbered   to   the   State   of   Andhra
Pradesh/APDISCOMS.  The minutes of the meeting dated 28 th
September,   2012   of   the   Bid   Evaluation   Committee,   as   has
been noticed in the order of the State Commission dated 13 th
August, 2013, clarify this position.  
74. It   is   the   State   of   Andhra   Pradesh,   which   had
expressed   its   interest   in   purchasing   100%   power   from
HNPCL, as could be seen from the various documents placed
on   record.     The   communication   addressed   by   the   Principal
Secretary   to   the   Government   of   Andhra   Pradesh,   Energy
Department,   to   HNPCL   dated   26 th
  December,   2012,   clearly
reiterates the intention of the Government of Andhra Pradesh
in   purchasing   100%   power   (through   DISCOMS)   from   the

47
project of HNPCL.   The said communication would also show
that   the   State   has   assured   to   take   all   necessary   steps   for
commissioning the project at the earliest including execution
of   PPA   and   for   making   provision   of   Transmission   system   for
start­up   power   and   power   evacuation.     The   said
communication   would   clearly   show   that   the   parties   had
agreed to abide by the conditions mentioned in the Amended
and Restated PPA dated 15 th
 April, 1998, except to the extent
they   may   stand   modified   due   to   impact   of   change   in
laws/rules   and   regulated   standards   guiding   such   power
projects post 1998.  
75. No   doubt,   that   the   documents   placed   on   record
would   show   that   though   HNPCL   had   given   its   estimation   of
project   cost   on   the   basis   of   the   guidelines   issued   by   the
CERC,   the   same   was   received   by   the   appellants   –   DISCOMS
without prejudice to their rights to contest the same on every
component   before   the   State   Commission.     The   documents
placed on record would clearly show that the State of Andhra
Pradesh   has,   on   more   than   one   occasion,   expressed   that   it

48
was   interested   in   buying   100%   power   from   the   project   of
HNPCL.  The MoA signed between the appellants – DISCOMS
and HNPCL dated 17 th
  May, 2013, would clearly show that it
was   agreed   between   the   parties   that   the   entire   capacity   of
HNPCL   project   and   all   the   units   of   the   power   stations   shall,
at all times, be for the exclusive benefit of the DISCOMS and
the   DISCOMS   were   to   have   the   exclusive   right   as   well   as
obligation   to   purchase   the   entire   capacity   from   the   project.
Not   only   this,   but   after   the   Reorganisation   Act   came   into
effect   and   the   erstwhile   State   of   Andhra   Pradesh   was
bifurcated into the State of Andhra Pradesh and the State of
Telangana,   the   State   of   Andhra   Pradesh,   on   more   than   one
occasion,   reiterated   its   stand   of   procuring   100%   power   from
the   project   of   HNPCL.     Perusal   of   the   orders   of   the   State
Commission   dated   26 th
  September,   2015   and   6 th
  August,
2016,   would   clearly   reveal   that   the   appellants   –   DISCOMS
also stood by the position that the 100% power  generated in
the power plant of HNPCL was to be purchased by them. Not
only   this,   but   after   the   bifurcation   of   the   erstwhile   State   of

49
Andhra   Pradesh,   the   appellants   –   DISCOMS   entered   into   a
Continuation   Agreement   dated   28 th
  April,   2016,   reiterating
their stand.  
76. After   the   Continuation   Agreement   was   entered   into
on   28 th
  April,   2016,   the   appellants   –   DISCOMS   filed   O.P.
No.19   of   2016   for   approval   of   the   Continuation   Agreement
with   the   Amended   and   Restated   PPA   of   1998   on   11 th
  May,
2016.     The   State   Government   again   on   1 st
  June,   2016,
accorded its approval  for  purchase of 100% power  generated
by   HNPCL.     It   could   thus   be   seen   that   right   from   the   year
2012   till   January,   2018,   it   was   the   consistent   stand   of   the
State of Andhra Pradesh as well as the appellants – DISCOMS
and  its predecessors that  the appellants  ­ DISCOMS were to
purchase 100% power generated by HNPCL.  
77. It   is   also   not   in   dispute   that   in   pursuance   of   the
MoA,   executed   on   17 th
  May,   2013,   HNPCL   had   also   entered
into   FSA   dated   26 th
  August,   2013   with   Mahanadi   Coalfield
Limited for supply of coal for the project.  

50
78. It   is   thus   clear   that   the   consistent   stand   of   the
appellants ­ DISCOMS from the year 2012, for the first time,
changed   on   4 th
  January,   2018,   when   they   filed   Interlocutory
Applications   before   the   State   Commission   for   withdrawal   of
O.P. No.19 of 2016 and disposal of O.P. No.21 of 2015.
79. As already observed hereinabove, in the open bidding
process,   conducted   in   the   year   2011­2012,   HNPCL   emerged
as the successful L­2 bidder. It is however on account of the
stand   taken   by   the   Bid   Evaluation   Committee,   that   it   was
discarded   from   the   bidding   process.       As   such,   the   stand   of
the   appellants   –   DISCOMS,   that   the   revival   of   the   project   of
HNPCL   was   as   a   Merchant­power   plant   and   therefore,   the
appellants   –   DISCOMS   cannot   be   compelled   to   purchase
power   from   it,   is   self­contradictory.     On   one   hand,   HNPCL
was  discarded from   the  open  bidding   process, though  it  was
the   successful   L­2   bidder,   on   the   ground   that   100%   power
generated   by   HNPCL   is   encumbered   to   the   State   of   Andhra
Pradesh/APDISCOMS   whereas,   on   the   other   hand,   it   is   now
sought to be urged that the appellants – DISCOMS cannot be

51
compelled to purchase the power from HNPCL, since it was a
merchant­power   plant.     We   have   no   hesitation   to   hold   that
the APTEL has rightly held that, on account of the assurance
given   by   the   State   of   Andhra   Pradesh/APDISCOMS,   HNPCL
had   altered   its   position   and   as   such,   it   was   not   permissible
for   the   appellants   –   DISCOMS   to   withdraw   O.P.   No.19   of
2016.  The grounds, which are sought to be urged in I.A. No.1
of  2018  in   O.P.   No.19  of   2016   and  I.A.  No.2  of   2018  in   O.P.
No.21 of 2015, were very much available when the appellants
– DISCOMS had entered into MoA on 17 th
 May, 2013 and the
Continuation Agreement dated 28 th
  April, 2016.   It is difficult
to   appreciate   how   it   is   permissible   for   the   appellants   –
DISCOMS to withdraw the application for grant of approval of
PPA   on   the   ground   that   it   could   procure   the   power   only
through the competitive bidding process, when in the facts of
the   present  case,  it   was  the   State   of   Andhra   Pradesh,  which
had discarded HNPCL from the open bidding process of 2011­
2012,   though   it   had   successfully   emerged   as   L­2   bidder   in
the said bidding process.  

52
80. Various   authorities   have   been   cited   at   the   Bar   in
support   of   the   proposition   that   withdrawal   of   an   application
could not be permissible when such a withdrawal amounts to
frustration of a contract and thereby defeats the rights of the
defendant and that the right of withdrawal is not absolute.  In
this   respect,   we   will   refer   to   the   observations   made   by   this
Court   in   the   case   of   Arjun   Singh   v.   Mohindra   Kumar   &
Ors. 15
.  Though the issue involved in the said case is distinct
than   the   issue   involved   in   the   present   case,   we   find   that   it
will be apposite to seek guidance from the observations made
by this Court, while construing the provisions of Order IX and
Order   XX   of   the   Code   of   Civil   Procedure,   1908   (CPC).     The
relevant extract reads thus:
“   ….In   the   present   context   when   once
the   hearing   starts,   the   Code   contem ­
plates  only   two   stages   in  the   trial  of   the
suit:   (1)   where   the   hearing   is   adjourned
or   (2)   where   the   hearing   is   completed.
Where,   the   hearing   is   completed   the
parties have no further rights or priv ­
ileges in the matter and it is only for
the   convenience  of  the  Court   that   Or ­
15  (1964) 5 SCR 946

53
der   XX.   Rule   1   permits   judgment   to
be   delivered   after   interval   after   the
hearing is completed. It would, there ­
fore,   follow   that   after   the   stage   con ­
templated   by   Order   IX.   Rule   7   is
passed   the   next   stage   is   only   the
passing   of   a   decree   which   on   the
terms of Order IX. Rule 6 the Court is
competent   to   pass.   And   then   follows
the remedy of the party to have that de ­
cree   set   aside   by   application   under   Or ­
der   IX.   Rule   13.   There   is   thus   no   hia ­
tus   between   the   two   stages   of   reser ­
vation   of   judgment   and   pronouncing
the   judgment   so   as   to   make   it   neces ­
sary   for   the   Court   to   afford   to   the
party   the   remedy   of   getting   orders
passed on the lines  of  Order IX.  Rule
7.   We  are,  therefore,  of  the  opinion  that
the Civil Judge was not competent to en ­
tertain   the   application   dated   May   31,
1958   purporting   to   be   under   Order   IX.
Rule   7   and   that   consequently   the   rea ­
sons given in the order passed would not
be res judicata to bar the hearing of the
petition  undo   Order   IX.   Rule   13   filed  by
the appellant.”
[emphasis supplied]
81. It   can   be   seen   that   this   Court   has   held   that   CPC
contemplates two stages of the trial in the suit: (1) where the
hearing is adjourned; and (2) where the hearing is completed.

54
It   has   been   held   that   where   the   hearing   is   completed,   the
parties have no further rights or privileges in the matter and
it is only for the convenience of the Court that Order XX rule
1 permits judgment to be delivered after an interval after the
hearing is completed. It has been held that there is no hiatus
between   the   two   stages   of   reservation   of   judgment   and
pronouncing the judgment so as to make it necessary for the
Court   to   afford   to   the   party   the   remedy   of   getting   orders
passed on the lines of Order IX rule 7. 
82. The   other   judgments   of   various   High   Courts   relied
upon   by   Shri   Ramachandran,   follow   the   line   laid   down   by
this Court in  Arjun Singh  (supra).  
83. Insofar as the reliance placed by Shri Vaidyanathan,
learned   Senior   Counsel,   on   the   judgment   of   Court   of   Appeal
in   the   case   of   Boal   Quay   Wharfingers   Ltd.   (supra)   is
concerned, the said case arose out of an application made by
the appellant therein to the Licensing Authority for grant of a
license.     It   was   not   an   application   in   a   quasi­judicial
proceeding   where   the   withdrawal   of   an   application   would

55
adversely affect the rights of the other party.  In the said case,
it   has   been   observed   that   if   a   person   applies   for   a   license,
there   is   no   prohibition   as   to   why   he   is   not   entitled   to
withdraw   his   application,   unless,   of   course,   there   is   some
provision   in   law,   which   would   prevent   him   from   doing   so.
The proceedings in the aforesaid case did not arise from a lis
between the two parties, but arose out of an application made
by   a   party   to   a   licensing   authority   under   the   Docks   and
Harbours Act, 1966.
84. Insofar as the reliance placed on the judgment of this
Court   in   the   case   of   Hulas   Rai   Baij   Nath   (supra)   is
concerned,   the   respondent   therein   had   instituted   a   suit   for
rendition of accounts against the appellant­firm, alleging that
the   appellant­firm   was   the   commission   agent   of   the
respondent and that the accounts between respondent as the
principal   and   appellant   as   the   agent   were   not   settled.   The
claim of the respondent was resisted by the appellant therein,
stating that the claim of the respondent was fully settled and
that   the   suit   was   not   fit   to   proceed   in   accordance   with   law.

56
In the said suit, after a considerable amount of evidence had
been recorded, an application was presented on behalf of the
respondent­plaintiff for withdrawal of the suit.  The same was
objected   to.   The   trial   court   overruled   the   objection   of   the
appellant­defendant,   holding   that   the   plaintiff   had   a   right   to
withdraw   the   suit   and   that   right   could   be   exercised   at   any
time   before   judgment.     The   defendant   could   only   claim   an
order   for   costs   in   his   favour.     The   suit   was   therefore
dismissed   awarding   costs   of   the   suit   to   the   appellant­
defendant.  The appellant­defendant filed revision in the High
Court.   The   High   Court   dismissed   the   revision.     Being
aggrieved, the  appellant­defendant  had  approached the  Apex
Court.  In this factual background, this Court observed thus:
“ 2.   The   short   question   that,   in   these   cir ­
cumstances,   falls   for   decision   is   whether
the   respondent   was   entitled   to   withdraw
from the suit and have it dismissed by the
application   dated   5th   May,   1953   at   the
stage   when   issues   had   been   framed   and
some   evidence   had   been   recorded,   but   no
preliminary   decree   for   rendition   of   ac ­
counts had yet been passed. The language
of  order  23 Rule  1  sub­rule  (1)  CPC, gives
an   unqualified   right   to   a   plaintiff   to   with ­

57
draw   from   a   suit   and,   if   no   permission   to
file   a   fresh   suit   is   sought   under   sub­rule
(2) of that Rule, the plaintiff becomes liable
for such costs as the Court may award and
becomes   precluded   from   instituting   any
fresh suit in respect of that subject­matter
under sub­rule (3) of that Rule. There is no
provision   in   the   Code   of   Civil   Procedure
which requires the Court to refuse permis ­
sion   to   withdraw   the   suit   in   such   circum ­
stances and to compel the plaintiff to pro ­
ceed   with   it.   It   is,   of   course,   possible   that
different considerations may arise where a
set­off may have been claimed under order
8   CPC,   or   a   counter   claim   may   have   been
filed,   if   permissible   by   the   procedural   law
applicable   to   the   proceedings   governing
the suit. In the present case, the pleadings
in paras 8 and 11 of the written statement
mentioned   above,   clearly   did   not   amount
to   a   claim   for   set­off.   Further,   there   could
be no counter­claim, because no provision
is   shown   under   which   a   counter­claim
could   have   been   filed   in   the   trial   court   in
such a suit. There is also the circumstance
that   the   application   for   withdrawal   was
moved at a stage when no preliminary de ­
cree   had   been   passed   for   rendition   of   ac ­
count   and,   in   fact,   the   appellant   was   still
contending   that   there   could   be   no   rendi ­
tion   of   accounts   in   the   suit,   because   ac ­
counts   had   already   been   settled.   Even   in
para   11,   the   only   claim   put   forward   was
that,  in   case   the  Court   found   it   necessary
to   direct   rendition   of   accounts   and   any
amount   is   found   due   to   the   appellant,   a
decree may  be passed in  favour  of  the  ap ­
pellant for that amount. In this paragraph

58
also,   the   right   claimed   by   the   appellant
was a contingent right which did not exist
at   the   time   when   the   written   statement
was filed.” 
85. It   could   thus   be   seen   that   the   facts   in   the   aforesaid
case   are   totally   different   from   the   facts   in   the   present   case.
This   Court   in   the   aforesaid   case   held   that   there   is   no
provision   in   the   CPC,   which   requires   the   Court   to   refuse
permission   to   withdraw   the   suit   and   compel   the   plaintiff   to
proceed  with  it.     However,  this   Court   itself  has   clarified  that
different considerations could arise where a set­off may have
been claimed under order VIII of CPC, or a counter claim may
have   been   filed,   if   permissible   by   the   procedural   law
applicable   to   the   proceedings   governing   the   suit.       It   was
found   that   from   the   pleadings   in   the   written   statement,   it
could be clearly seen that there is no claim for set­off.  It was
further found that there could be no counter­claim, since no
provision was shown under which a counter­claim could have
been   filed   in   the   trial   court   in   such   a   suit.   It   was   further
found   that   the   right   claimed   by   the   appellant   was   a

59
contingent   one   and   did   not   exist   at   the   time   at   which   the
written statement was filed.  
86. The   facts   in   the   present   case   are   totally   different,
wherein,   after   execution   of   various   agreements,   an
application   being   O.P.   No.19   of   2016   came   to   be   filed   for
grant   of   approval   of   PPA.     Not   only   this,   but   the   said   O.P.
No.19   of   2016   was   clubbed   along   with   O.P.   No.21   of   2015 ,
which was filed for determination of capital cost of the project
as   well   as   for   determination   of   tariff.     It   can   further   be   seen
that   in   the   aforesaid   case,   an   application   for   withdrawal   of
the suit was filed at the stage of leading of evidence.  It is not
as   if   the   application   was   filed   after   the   suit   was   closed   for
judgment.  
87. In   any   case,   we   are   of   the   considered   view   that   the
conduct   of   the   appellants   –   DISCOMS ,   in   the   present   case,
would disentitle them to withdraw the application. 
88. Another argument, that on account of increase of the
capital   cost   of   the   project,   the   appellants   –   DISCOMS   would
be required to purchase power at much higher rate, also does

60
not hold water.  The State Commission while determining the
tariff would be guided by various factors as are required to be
taken   into   consideration   in   view   of   the   provisions   of   Section
61   of   the   Act   of   2003.       In   any   event,   the   appellants   –
DISCOMS have themselves reserved their right to contest the
correctness of the cost on every component at an appropriate
stage   before   the   State   Commission.     As   already   stated
hereinabove, the State Commission, while approving the cost
of   the   project   and   determining   the   tariff   at   which   the
electricity   would   be   purchased   by   the   APDISCOMS   from
HNPCL, would be required to look into various factors as are
stated   in   Section   61   of   the   Act   of   2003,   so   also   under   the
Regulations   notified   for   that   purpose.     While   doing   so,   the
State   Commission   would   be   required   to   take   into
consideration   the   various   aspects   as   well   as   submissions   to
be   made   by   the   appellants   –   DISCOMS   and   HNPCL.     Merely
because,   the   cost   of   the   project   is   estimated   by   HNPCL   at   a
particular   amount,   the   State   Commission   is   not   bound   to
accept the same.   The State Commission would only approve

61
the   cost   as   it   would   feel   appropriate,   as   guided   by   the
provisions   under   Section   61   of   the   Act   of   2003   and   the
Regulations.  In that view of the matter, the argument in this
regard also, is without substance.  
89. The appellants – DISCOMS have heavily relied on the
judgment of this Court in the case of   Tata Power Company
Limited   v.   Reliance   Energy   Limited   and   others 16
,   and
particularly, on paragraph 106 thereof, which reads thus:
“ 106.   The   scheme   of   the   Act,   namely,
the   generation   of   electricity   is   outside
the licensing purview and subject to ful ­
filment   of   the   conditions   laid   down   un ­
der   Section   42   of   the   Act   a   generating
company   may   also   supply   directly   to
consumer   wherefor   no   licence   would   be
required,   must   be   given   due   considera ­
tion.   The   said   provision   has   to   be   read
with   Regulation   24.   In   regard   to   the
grant   of   approval   of   PPA   the   procedures
laid   down   in   Regulation   24   are   required
to be followed.”
90. No doubt, that this Court has held that   a generating
company   may   also   supply   directly   to   consumer   wherefor   no
licence would be required, however, this Court itself observed
16  (2009) 16 SCC 659

62
that the said provision has to be read with Regulation 24 and
with   regard   to   the   grant   of   approval   of   PPA,   the   procedures
laid down in Regulation 24 are required to be followed.  
91. It   will   also   be   relevant   to   refer   to   paragraph   119   of
the said judgment. 
“ 119.   The   2003   Act   even   permits   the
generating  company  to supply  electricity
to a consumer directly. For the said pur ­
pose what is necessary is to comply with
the   provisions   of   the   Act,   the   Rules   and
the   Regulations.   Section   14   of   the   Act
categorically provides for grant of licence
to   any   person   who   is   transmitting   elec ­
tricity   or   distributing   supply   or   under ­
taking   trading   therein,   indisputably,
however,   the   generator   of   an   electrical
energy,   although   is   not   subject   to   the
grant of licence but while supplying elec ­
trical  energy  to  a  distributing  agency, in
turn   would   be   subject   to   approval   and
directions of the Commission.”
92. It   can   thus   clearly   be   seen   that   this   Court   has   held
that though the   Act of 2003   permits the generating company
to   supply   electricity   to   a   consumer   directly,   and   that   the
generator of an electrical energy is not subject to the grant of
license, but while supplying electrical energy to a distributing

63
agency,   in   turn,   it   would   be   subject   to   approval   and
directions of the Commission.  
93. We are, therefore, of the view that the said judgment
is of no assistance to the case sought to be advanced by the
appellants   –   DISCOMS .     On   the   contrary,   we   find   that   the
view   that   is   being   taken   by   us   is   fortified   by   the   following
observations   of   this   Court   in   the   case   of   Tata   Power
Company Limited  (supra):
“ 87.   ….   The   agreement   of   distribution
(PPA)   being   subject   to   approval,   indis ­
putably the Commission would have the
public   interest   in   mind.   It   has   power   to
approve   an   MoU   which   subserves   the
public   interest.   It,   while   granting   such
approval   may   also   take   into   considera ­
tion   the   question   as   to   whether   the
terms to be agreed are fair and just.
*** *** ***
111.   Section 86(1)( b ) provides for regula ­
tion of electricity purchase and procure ­
ment process of distribution licensees. In
respect   of   generation   its   function   is   to
determine   the   tariff   for   generation   as
also   in   relation   to   supply,   transmission
and   wheeling   of   electricity.   Clause   ( b )   of

64
sub­section (1) of Section 86 provides to
regulate   electricity   purchase   and   pro ­
curement   process   of   distribution   li ­
censees including the price at which the
electricity   shall   be   procured   from   the
generating   companies   or   licensees   or
from   other   sources  through   agreements.
As a part of the regulation it can also ad ­
judicate   upon   disputes   between   the   li ­
censees and generating companies in re ­
gard   to   the   implementation,   application
or  interpretation  of  the provisions  of the
said agreement.”
94. It   is   thus   trite   that,   while   considering   grant   of
approval to the PPA, the State Commission will have to keep
in   mind   the   public   interest.     It   will   have   to   consider,   as   to
whether the PPA, which is subject to approval, sub­serves the
public   interest.     It   will   also   be   required   to   take   into
consideration,   as   to   whether   the   terms   agreed   are   fair   and
just   while   granting   approval.     While   exercising   power   under
Section 86(1)(b) of the Act of 2003, the Commission will have
to   regulate   the   price   at   which   the   electricity   would   be
procured from the generating companies.  Undoubtedly, while
doing   so,   the   Commission   will   be   guided   by   the   factors

65
mentioned   in   Section   61   of   the   Act   of   2003   and   the
Regulations   concerning   the   same.     Under   Section   86(1)(f)   of
the   Act   of   2003,   the   Commission   is   also   empowered   to
adjudicate   upon   the   disputes   between   the   licensees   and
generating   companies,   and   to   refer   any   such   dispute   for
arbitration.
95. Another argument made on the basis of Section 21 of
the Reform Act is also not tenable.     Much reliance is placed
on sub­section (5) of Section 21 of the said Act, which reads
thus:
“(5) Any   agreement   relating   to   any
transaction   of   the   nature   described   in   sub
sections   (1),   (2),   (3)   or   (4)   unless   made   with
or subject to such consent as aforesaid, shall
be void.”
96. It   could   thus   be   seen   that   any   of   the   agreements
mentioned   in   sub­sections   (1),   (2),   (3)   or   (4)   of   Section   21
would   be   void   unless   they   are   made   with   the   consent   of   the
Commission   or   subject   to   such   consent.     Undisputedly,
understanding this legal position, O.P. No.19 of 2016 came to
be   filed   by   the   appellants   –   DISCOMS,   so   as   to   obtain

66
approval of the State Commission for the PPA entered into by
them with HNPCL.
97. Insofar   as   the   reliance   placed   on   the   provision   of
Regulation   5.2   of   the   Tariff   Regulations   is   concerned,   the
same deals with approach to determination of tariff.   It could
be seen that, whereas Regulation 5.1 of the Tariff Regulations
provides   that   where   tariff   has   been   determined   through
transparent   process   of   bidding   in   accordance   with   the
guidelines   issued   by   the   Central   Government,   the
Commission   shall   adopt   such   tariff   in   accordance   with   the
provisions of the Act; Regulation 5.2 of the Tariff Regulations
provides   that   the   provisions   specified   in   Part­II   of   the   said
Regulation   shall   apply   in   determining   tariff   based   on   capital
cost for supply to a Distribution Licensee. Part­II of the Tariff
Regulations   deals   with   ‘Filing   Details’   and   ‘Tariff
Determination’.   Regulation   9   requires   that   each   application
where   tariff   is   to   be   determined   based   on   capital   cost   shall
include various details duly accompanied by supporting data
and   documentary   and   other   evidence   regarding   Fixed   Costs,

67
Variable Costs and Norms of operation, etc.  Regulation 10 of
the   Tariff   Regulations   requires   the   tariff   to   be   determined   in
accordance   with   the   norms   specified   under   the   said
Regulations,   guided   by   the   principles   and   methodologies
specified   in   CERC   (Terms   and   Conditions   of   Tariff)
Regulations,   2004,   as   amended   from   time   to   time.     The
Regulations   contain   detailed   guidelines,   as   to   what   shall   be
the   component   of   tariff   and   as   to   how   the   capital   cost   and
tariff is to be determined.  
98. We   find   that   such   an   argument   at   the   behest   of   a
party, which has discarded HNPCL from the bidding process,
though it had emerged as the successful L­2 bidder, does not
hold   water   and   we   have   no   hesitation   to   say   that   the
appellants   –   DISCOMS’   approach   is   of   approbate   and
reprobate.  
99. In any event, we find that the State Commission has
totally erred in dismissing O.P. No.21 of 2015 filed by HNPCL.
Perusal   of   Section   64   of   the   Act   of   2003   would   reveal   that
even   a   Generating   Company   is   entitled   to   make   an

68
application for determination of tariff under Section 62 of the
Act   of   2003.   As   such,   irrespective   of   the   question,   as   to
whether  an  application  for   withdrawal  of  O.P.  No.19  of  2016
filed   by   the   appellants   ­   DISCOMS   could   have   been
entertained,   the   State   Commission   was   wholly   unjustified   in
dismissing   O.P.   No.21   of   2015   filed   by   HNPCL.   In   any   case,
we   have   held   that   in   the   facts   of   the   present   case   and,
particularly,   taking   into   consideration   the   conduct   of   the
appellants   –   DISCOMS,   the   APTEL   has   rightly   held   that   the
appellants   –   DISCOMS   could   not   have   been   permitted   to
withdraw O.P. No.19 of 2016.  
100. Undisputedly,   the   appellants   –   DISCOMS   are
instrumentalities of the State and as such, a State within the
meaning   of   Article   12   of   the   Constitution   of   India.     Every
action of a State is required to be guided by  the touch­stone
of   non­arbitrariness,   reasonableness   and   rationality.     Every
action   of   a   State   is   equally   required   to   be   guided   by   public
interest.   Every   holder   of   a   public   office   is   a   trustee,   whose
highest   duty   is   to   the   people   of   the   country.     The   Public

69
Authority is therefore required to exercise the powers only for
the public good.  
101. We   may   gainfully   refer   to   the   following   observations
of   this   Court   in   the   case   of   Kumari   Shrilekha   Vidyarthi
and others v. State of U.P. and others 17
:
“ 27.   Unlike  a  private   party   whose   acts   un ­
informed  by  reason  and  influenced by  per ­
sonal   predilections   in   contractual   matters
may   result   in   adverse   consequences   to   it
alone   without   affecting   the   public   interest,
any   such   act  of   the   State   or   a   public   body
even in this field would adversely affect the
public interest. Every holder of a public of ­
fice by virtue of which he acts on behalf of
the   State   or   public   body   is   ultimately   ac ­
countable   to   the   people   in   whom   the
sovereignty   vests.   As   such,   all   powers   so
vested in him are meant to be exercised for
public good and promoting the public inter ­
est.   This   is   equally   true   of   all   actions   even
in   the   field   of   contract.   Thus,   every   holder
of a public office is a trustee whose highest
duty   is   to   the   people   of   the   country   and,
therefore, every act of the holder of a public
office,   irrespective   of   the   label   classifying
that   act,   is   in   discharge   of   public   duty
meant   ultimately   for   public   good.   With   the
diversification of State activity  in a Welfare
State   requiring   the   State   to   discharge   its
17  (1991) 1 SCC 212

70
wide   ranging   functions   even   through   its
several   instrumentalities,   which   requires
entering   into   contracts   also,   it   would   be
unreal and not pragmatic, apart from being
unjustified   to   exclude   contractual   matters
from the sphere of State actions required to
be non­arbitrary and justified on the touch ­
stone of Article 14.
28.   Even   assuming   that   it   is   necessary   to
import   the   concept   of   presence   of   some
public   element   in   a   State   action   to   attract
Article   14   and   permit   judicial   review,   we
have   no   hesitation   in   saying   that   the   ulti ­
mate impact of all actions of the State or a
public   body   being   undoubtedly   on   public
interest,   the   requisite   public   element   for
this   purpose   is   present   also   in   contractual
matters.   We,   therefore,   find   it   difficult   and
unrealistic   to   exclude   the   State   actions   in
contractual   matters,   after   the   contract   has
been made, from the purview of judicial re ­
view to test its validity on the anvil of Arti ­
cle 14.”
102. It   will   also   be   apposite   to   refer   to   the   following
observations   of   this   Court   in   the   case   of   Food   Corporation
of India v. M/s Kamdhenu Cattle Feed Industries 18
:
“ 7.   In   contractual   sphere   as   in   all   other
State actions, the State and all its instru ­
18   (1993) 1 SCC 71

71
mentalities   have   to   conform   to   Article   14
of   the   Constitution   of   which   non­arbi ­
trariness is a significant facet. There is no
unfettered   discretion   in   public   law:   A
public authority possesses powers only to
use   them   for   public   good.   This   imposes
the duty to act fairly  and to adopt a pro ­
cedure   which   is   ‘fairplay   in   action’.   Due
observance  of  this   obligation  as  a  part  of
good   administration   raises   a   reasonable
or   legitimate   expectation   in   every   citizen
to be treated fairly in his interaction with
the   State   and   its   instrumentalities,   with
this element  forming  a necessary  compo ­
nent of the decision­making process in all
State actions. To satisfy this requirement
of   non­arbitrariness   in   a   State   action,   it
is,   therefore,   necessary   to   consider   and
give due weight to the reasonable or legit ­
imate expectations of the persons likely to
be   affected   by   the   decision   or   else   that
unfairness   in   the   exercise   of   the   power
may   amount   to   an   abuse   or   excess   of
power apart from affecting the bona fides
of  the  decision  in  a  given  case.  The  deci ­
sion   so   made   would   be   exposed   to   chal ­
lenge on the ground of arbitrariness. Rule
of   law   does   not   completely   eliminate   dis ­
cretion   in   the   exercise   of   power,   as   it   is
unrealistic, but provides for control of its
exercise by judicial review.
8.   The   mere   reasonable   or   legitimate   ex ­
pectation of a citizen, in such a situation,
may not by itself be a distinct enforceable

72
right, but failure to consider and give due
weight to it may render the decision arbi ­
trary, and this is how the requirement of
due consideration of a legitimate expecta ­
tion forms part of the principle of non­ar ­
bitrariness,   a   necessary   concomitant   of
the   rule  of   law.   Every   legitimate   expecta ­
tion   is   a   relevant   factor   requiring   due
consideration   in   a   fair   decision­making
process.   Whether   the   expectation   of   the
claimant   is   reasonable   or   legitimate   in
the   context   is   a   question   of   fact   in   each
case.   Whenever   the   question   arises,   it   is
to   be   determined   not   according   to   the
claimant's perception but in larger public
interest   wherein   other   more   important
considerations may outweigh what would
otherwise have been the legitimate expec ­
tation   of   the   claimant.   A   bona   fide   deci ­
sion   of   the   public   authority   reached   in
this   manner   would   satisfy   the   require ­
ment   of   non­arbitrariness   and   withstand
judicial   scrutiny.   The   doctrine   of   legiti ­
mate   expectation   gets   assimilated   in   the
rule of law and operates in our legal sys ­
tem in this manner and to this extent.”
103. Recently,   this   Court   in   the   case   of   Indian   Oil
Corporation   Limited   and   others   v.   Shashi   Prabha
Shukla and another 19
,   after referring to earlier judgments of
this Court on the present issue has observed thus:
19   (2018) 12 SCC 85

73
  “ 33.   Jurisprudentially   thus,   as   could   be
gleaned   from   the   above   legal   enuncia ­
tions,   a   public   authority   in   its   dealings
has   to   be   fair,   objective,   non­arbitrary,
transparent   and   non­discriminatory.   The
discretion   vested   in   such   an   authority,
which   is   a   concomitant   of   its   power   is
coupled   with   duty   and   can   never   be   un ­
regulated   or   unbridled.   Any   decision   or
action   contrary   to   these   functional   pre ­
cepts would be at the pain of invalidation
thereof.   The   State   and   its   instrumentali ­
ties, be it a public authority, either as an
individual   or   a   collective   has   to   essen ­
tially   abide   by   this   inalienable   and   non­
negotiable   prescriptions   and   cannot   act
in   breach   of   the   trust   reposed   by   the
polity   and   on   extraneous   considerations.
In exercise of uncontrolled discretion and
power,   it  cannot   resort   to   any   act   to   frit ­
ter, squander and emasculate any public
property, be it by way of State largesse or
contracts,   etc.   Such   outrages   would
clearly be unconstitutional and extinctive
of   the   rule   of   law   which   forms   the
bedrock of the constitutional order.”
104. In   the   present   case,   though   initially,   HNPCL   had
revived   its   project   in   the   year   2007   as   a   Merchant­power
plant   and   offered   25%   of   electricity   to   the   State,   it   was   the
State,   which   offered   to   purchase   100%   power   from   HNPCL.
HNPCL agreed for  the said offer of the   State Government .   It

74
is clear from the record and, particularly, the letter dated 26 th
December,   2012,   that   the   State   had   given   various
facilities/concessions   to   HNPCL   for   execution   of   its   power
project.  The documents on record would reveal that the State
has also allotted thousands of acres of land for the project to
HNPCL.   It is not in dispute that in pursuance of the MoA of
2013 (dated 17 th
 May, 2013) and the Continuation Agreement
of   2016   (dated   28 th
  April,   2016),   the   entire   project   has   been
erected   and   is   operational.     Not   only   this,   but   from   the   year
2016   till   14 th
  July,   2020,   the   power   has   been   purchased   by
the   appellants   –   DISCOMS   from   HNPCL.     It   could   thus   be
seen   that   after   investment   of   huge   resources   including   the
land   belonging   to   the   State,   the   project   is   complete   and   has
become   operational.     The   question,   at   this   juncture,   would
be, whether to discard such a project is in the public interest
or against it.     At the cost of repetition, it may be reiterated,
that   the   determination   of   the   capital   cost   of   the   project   and
the   rate   of   tariff   at   which   the   power   has   to   be   purchased
would   always   be   subject   to   regulatory   control   of   the   State

75
Commission.     What   has   been   done   by   the   APTEL   is   only
directing the State Commission to determine the same.    
105. The   record   would   clearly   reveal   that   from   the   year
2012   onwards   till   4 th
  January,   2018,   it   was   the   consistent
stand   of   the   State   of   Andhra   Pradesh   as   well   as   the
APDISCOMS   that   it   would   be   purchasing   100%   power
generated from the project of HNPCL.  Not only an application
being   O.P.   No.21   of   2015   was   filed   by   HNPCL   for
determination of capital cost, but also O.P. No.19 of 2016 was
filed by the appellants – DISCOMS for grant of approval to the
Continuation   Agreement   dated   28 th
  April,   2016   with   the
Amended and Restated PPA of 1998.  The matters were heard
finally   on   15 th
  May,   2017   and   closed   for   orders.     For   some
unknown   reasons,   exclusively   within   the   knowledge   of   the
appellants   –   DISCOMS,   things   turned   topsy­turvy   between
15 th
  May,   2017   and   4 th
  January,   2018,   on   which   date,   the
appellants   –   DISCOMS   did   a   somersault   and   filed
applications   for   withdrawal   of   O.P.   No.19   of   2016   and
disposal   of   O.P.   No.21   of   2015.     As   already   discussed

76
hereinabove,   every   decision   of   the   State   is   required   to   be
guided by public interest and the power is to be exercised for
public   good.     For   reasons   unknown,   the   appellants   –
DISCOMS   took   a   decision   to   resile   from   their   earlier   stand,
due to which, not only the huge investment made by HNPCL
would   go  in   waste,  but   also  valuable   resources  of   the  public
including   thousands   of   acres   of   land  would   go   in   waste.     As
already   discussed   hereinabove,   the   reasons/grounds,   which
are sought  to be given in I.A. No. 1 of 2018 in  O.P. No.19 of
2016 and I.A. No.2 of 2018 in O.P. No.21 of 2015, filed on 4 th
January,   2018,   were   very   much   available   between   2011   till
15 th
  May,   2017.     It   is   not   as   if   something   new   has   emerged
between 15 th
  May, 2017 and 4 th
  January, 2018, which would
have   entitled   the   appellants   –   DISCOMS   to   resile   from   their
earlier   stand.     We   have   no   hesitation   to   hold   that   the
appellants – DISCOMS could not be permitted to change the
decision at their whims and fancies and, particularly, when it
is   adversarial   to   the   public   interest   and   public   good.   The

77
record   would   clearly   show   that   the   change   in   decision   is
arbitrary, irrational and unreasonable.  
106. We   may   also   gainfully   refer   to   the   following
observations   of   this   Court   in   the   case   of   Kalabharati
Advertising   v.   Hemant   Vimalnath   Narichania   and
others 20
:
  “25.   The State is under obligation to act
fairly without ill will or malice— in fact or
in   law.   “Legal   malice”   or   “malice   in   law”
means something done without lawful ex ­
cuse. It is an act done wrongfully and wil ­
fully   without   reasonable   or   probable
cause,   and   not   necessarily   an   act   done
from ill feeling and spite. It is a deliberate
act   in   disregard   to   the   rights   of   others.
Where malice is attributed to the State, it
can never be a case of personal ill will or
spite on the part of the State. It is an act
which is taken with an oblique or indirect
object.   It   means   exercise   of   statutory
power   for   “purposes   foreign   to   those   for
which   it   is   in   law   intended”.   It   means
conscious violation of the law to the prej ­
udice   of   another,   a   depraved   inclination
on   the   part   of   the   authority   to   disregard
the rights of others, which intent is mani ­
fested   by   its   injurious   acts.   (Vide   ADM,
Jabalpur   v.   Shivakant   Shukla   [(1976)   2
20   (2010) 9 SCC 437

78
SCC   521   :   AIR   1976   SC   1207]   ,   S.R.
Venkataraman   v.   Union   of   India   [(1979)   2
SCC   491   :   1979   SCC   (L&S)   216   :   AIR
1979   SC   49]   ,   State   of   A.P.   v.   Goverdhan ­
lal Pitti   [(2003) 4 SCC 739 : AIR 2003 SC
1941] ,   BPL Ltd.   v.   S.P. Gururaja   [(2003) 8
SCC   567]   and   W.B.   SEB   v.   Dilip   Kumar
Ray   [(2007)   14   SCC   568   :   (2009)   1   SCC
(L&S) 860] .)
26.   Passing an order for an unauthorised
purpose   constitutes   malice   in   law.
(Vide   Punjab   SEB   Ltd.   v.   Zora
Singh   [(2005) 6 SCC 776] and   Union of In ­
dia   v.   V.   Ramakrishnan   [(2005)   8   SCC
394 : 2005 SCC (L&S) 1150] .)”
107. We have no hesitation to hold that I.A. No.1 of 2018
in O.P. No.19 of 2016 and I.A. No.2 of 2018 in O.P. No.21 of
2015 filed by the appellants – DISCOMS, are acts, which have
been   done   wrongfully   and   wilfully   without   reasonable   and
probable cause.  It may not necessarily be an act done out of
ill feeling and spite.   However, the act is one, affecting public
interest and public good, without there being any rational or
reasonable basis for the same.  
108. Though   serious   allegations   of   mala   fide   have   been
made   by   HNPCL,   we   do   not   find   it   necessary   to   go   in   those

79
allegations.     However,   in   our   view,   the   present   case   would
squarely fit in the realm of ‘legal malice’ or ‘malice in law’.
109. In   any   case,   we   find   that   the   judgment   impugned
before us cannot be said to be of such a nature, which can be
said   to   be   prejudicial   to   the   interests   of   any   of   the   parties.
What has been done by the APTEL is only to direct the State
Commission   to   dispose   of   O.P.   No.21   of   2015   filed   for
determination of capital cost and O.P. No.19 of 2016 filed for
approval   of   Amended   and   Restated   PPA   (Continuation
Agreement)   on   merits.     On   remand,   the   State   Commission
would   be   bound   to   take   into   consideration   all   the   relevant
factors   and   the   contentions   to   be   raised   by   both   the   parties
before deciding the said O.Ps. 
110. We   therefore   find   no   reason   to   interfere   with   the
impugned   judgment.   However,   before   parting   with   the
judgment,   it   is   necessary   to   place   on   record   the   conduct   of
the   appellants   –   DISCOMS.     Though   vide   order   dated   14 th
July,   2020,   this   Court   had   stayed   the   impugned   judgment
passed by the APTEL, vide order dated 21 st
 August, 2020, this

80
Court   had   clarified   that   there   shall   be   no   stay   of   the   order
dated   16 th
  March,   2018   passed   by   the   APTEL.     It   is   not   in
dispute   that   in   pursuance   of   the   interim   order   dated   16 th
March,   2018,   passed   by   the   APTEL,   the   appellants   –
DISCOMS   were   purchasing   the   power   at   the   rate   of   Rs.3.82
per unit from HNPCL till  14 th
 July, 2020.   It is thus clear that
in   view   of   the   order   passed   by   this   Court   on   21 st
  August,
2020, the appellants – DISCOMS were required to continue to
purchase   the   power   from   HNPCL   at   the   rate   of   Rs.3.82   per
unit.     Undisputedly,   this   has   not   been   done.     The   reason
given   for   the   same   is   that   the   appellants   ­   DISCOMS   had
already   filed   an   application   for   vacation   of   the   order   dated
21 st
  August,   2020.     By   merely   filing   an   application,   the
appellants   –   DISCOMS   could   not   have   avoided   abiding   with
the   order   of   the   APTEL   dated   16 th
  March,   2018,   as
maintained by this Court vide order dated 21 st
  August, 2020.
It   is   brought   to   our   notice   that   though   the   appellants   –
DISCOMS   could   have   purchased   the   power   from   HNPCL   at
the   rate   of   Rs.3.82   per   unit   in   view   of   the   orders   passed   by

81
the  APTEL  and  by  this  Court,  they   have  chosen  to   purchase
the   power   at   higher   rate   from   various   generators   including
KSK   Mahanadi   from   whom   the   power   is   being   purchased   at
the rate of Rs.4.33 per unit.  
111. We ask a question to ourselves, as to whether public
interest,   which   is   so   vociferously   pressed   into   service   in   the
present   matter   by   the   appellants   –   DISCOMS,   lies   in
purchasing   the   power   at   the   rate   of   Rs.3.82   per   unit   from
HNPCL   or   by   purchasing   it   at   the   rate   of   Rs.4.33   per   unit
from   KSK   Mahanadi.   We   strongly   deprecate   such   a   conduct
of the  appellants  – DISCOMS,  which  are instrumentalities  of
the State.   The appellants – DISCOMS, rather than acting in
public   interest,   have   acted   contrary   to   public   interest.     For
defying   the   orders   passed   by   this   Court,   we   could   very   well
have initiated the action against the officials of the appellants
– DISCOMS for having committed contempt of this Court, but
we refrain ourselves from doing so.  

82
112. In   the   result,   the   present   appeal   is   dismissed   with
costs,   quantified   at   Rs.5,00,000/­   (Rupees   Five   lakh   only).
Pending I.As., if any, shall stand disposed of.   
113. Taking   into   consideration   that   the   issue   before   the
State   Commission   is   pending   since   long,   we   direct   the   State
Commission   to   decide   O.P.   No.21  of  2015   and   O.P.   No.19   of
2016, as expeditiously as possible, and in any case, within a
period of six months from the date of this judgment. 
114. Needless to say that till O.P. No.21 of 2015 and O.P.
No.19   of   2016   are   decided   by   the   State   Commission,   the
appellants   –   DISCOMS   shall   forthwith   start   purchasing   the
power from HNPCL at the rate of Rs.3.82 per unit as per the
orders   passed   by   the   APTEL   dated   16 th
  March,   2018   and   by
this Court dated 21 st
 August, 2020.  
…............................J.
                             [L. NAGESWARA RAO]
         ...............................J.
                                                  [B.R. GAVAI]
NEW DELHI;
FEBRUARY 02, 2022