Case note on Gujarat HC Judgment on Indian Wind Energy Association Vs GUVNL & Ors.

In this Article I am analysing recent high court judgment of the Gujarat High Court wherein High Court refused to stay bidding process of the power procurement from wind power

Facts:

Gujarat Urja Vikas Nigam Limited (“GUVNL”) initiated competitive bidding process under Section 63 of the Electricity Act, 2003 (“Act”) for procurement of wind power placing reliance on Draft Guidelines being №238/1/2017 for procurement of wind power through competitive bidding. Gujarat Electricity Regulatory Commission (“Commission”) conveyed to the GUVNL that it should take approval of bidding process from the Commission. GUVNL followed the direction and Commission vide its order dated 06.10.2017 (“Impugned Order”) approved the bidding process along with bidding documents and further directed GUVNL to approach the Commission for adoption of the tariff after completion of the bidding process.

Indian Wind Energy Association (“InWEA”) approached Gujarat High Court to quash and set aside the entire competitive bidding process as well as to challenge the Impugned Order..

Issue

The Gujarat High Court framed the following issue:

“Whether the Commission could have approved the competitive bidding process followed by reverse e-auction initiated by the respondent №1 for the procurement of power from Wind Projects, in absence of the final Guidelines issued by the Central Government, as envisaged under Section 63 of the Indian Electricity Act, 2003 (hereinafter referred to as “the said Act”).”

Submission of Parties

1) InWEA made following submission:

a) InWEA submitted for initiation of competitive bidding process under Section 63 there has to be bidding guidelines issued by the Central Government. It placed reliance on the wordings of Section 63 of the Act to back its submission. Section 63 of the Act is being reproduced herein:

“Section 63. (Determination of tariff by bidding process): Notwithstanding anything contained in section 62, the Appropriate Commission shall adopt the tariff if such tariff has been determined through transparent process of bidding in accordance with the guidelines issued by the Central Government.”

b) InWEA further submitted (placing reliance on recent Supreme Court Judgment in “Gujarat Urja Vikas Nigam Limited Vs. Solar Semiconductor Power Co. (I) Pvt. Ltd. and Ors.” (Civil Appeal №6399/2016 decided on 25.10.2017)) (“GUVNL Supreme Court Case”) that the Commission can not exercise its powers in the manner dehors the provisions specifically provided under the Act.

c) It further submitted that the Commission should be guided by the National Tariff Policy while passing its order and National Tariff Policy specifically states that till the Central Government does not frame guidelines all power procurement from renewable energy sources should be done through Section 62 of the Act.

d) It lastly submitted that the Commission is without jurisdiction because it advised GUVNL to approach the Commission in the midst of the bidding process.

2) GUVNL made following submission

a) GUVNL submitted that this petition is not maintainable because order of the Commission is appealable and further InWEA is not a party to the proceeding filed before the Commission. It further submitted that not any member of InWEA participated in bidding process and raised this issue ever before.

b) GUVNL submitted that the very objective of following the competitive bidding process was to protect the interest of the consumers and to procure the power at the best possible lowest tariff. GUVNL also placed reliance on Section 63 and 86 (1) (b) of the Act to submit that the Commission is duty bound to regulate the process of procurement of power.

c) GUVNL also submitted that guideline №5.1 of the draft bidding guidelines provides that in case of ongoing bidding process, the bid documents prepared in the said guidelines could be followed till the time they are finally notified by the Central Government.

d) GUVNL also relied on Supreme Court Judgment in “Energy Watchdog & Ors. Vs. CERC & Ors.” Civil Appeal №5399–5400 of 2016” (“Energy Watchdog”) to submit that Section 63 process can be initiated even in absence of the bidding guidelines.

Analysis and Order of the Court

1) High Court referred above quoted provisions of the Act and the Policy (Section 63, Section 86 (1) (b), National Tariff Policy) and also referred guidelines 5.1 of the draft bidding guidelines, which are being reproduced herein:

“5. PREPARATION FOR INVITING BID AND PROJECT PREPAREDNESS

The Procurer shall meet the following conditions:

5.1. Bid Documentation:

a) Prepare the bid documents in accordance with these Guidelines and Standard Bidding Documents (SBDs) [consisting of Model Request for Selection (RfS) Document, Model Power Purchase Agreement (PPA) and Model Power Sale Agreement (PSA)], notified by the Central Government, except as provided in sub clause © below.

b) Inform the Appropriate Commission about the initiation of the bidding process.

c) Seek approval of the Appropriate Commission for deviations, if any, in the draft RfS draft PPA, draft PSA (if applicable) from these Guidelines and/ or SBDs, in accordance with the process described in Clause 18 of these Draft for Discussion Guidelines.

i. However, till the time the SBDs are notified by the Central Government, for purpose of clarity, if the Procurer while preparing the draft RfS, draft PPA, draft PSA and other Project agreements provides detailed provisions that are consistent with the Guidelines, such detailing will not be considered as deviations from these Guidelines even though such details are not provided in the Guidelines.

ii. Further, in case of an ongoing bidding process, if the bids have

already been submitted by bidders prior to the notification of these Guidelines and/or SBDs, then if there are any deviations between these Guidelines and/or the SBDs and the proposed RfS, PPA, PSA (if applicable), the RfS, PPA and the PSA shall prevail.

d) In case of intermediary procurer, clearance from distribution licensee(s) on the draft RfS, PPA and PSA having details specific to the proposed procurement.”

2) High Court touched an interesting point but did not make any order on the point and left the topic post making its observation. High Court remarked that the Commission should not have asked GUVNL to approach it for approval of the bidding process. High Court observed that the Commission had adopted a strange procedure by advising the respondent Company to seek its approval, after the bidding process was started by the GUVNL.

3) High Court mainly discussed two above quoted judgment of the Supreme Court a) Energy Watchdog; b) GUVNL Supreme Court.

GUVNL Supreme Court Judgment states that the Commission being a creature of statute can not assume to itself any powers, which are not otherwise conferred on it and that in case of a specific subject or exercise of power by the Commission on a specific issue, is otherwise provided under the Act or the Rules, the same has to be exercised by the Commission only taking recourse to exercise that power and in no other manner. InWEA submitted that since there is no Central Government Guidelines, Commission should follow mandate of the Section 63 of the Act in strict sense since in various pronouncement it is being held that the Section 63 is a code in itself.

High Court found force in the argument of InWEA, however, it expresses its helplessness in relying on the argument of the InWEA view of the decision of the Supreme Court in case of Energy Watchdog.

The Supreme Court, in the afore-stated case, while addressing the issue as to whether in a

situation where there are no guidelines or in a situation, which is not covered by the guidelines issued by the Central Government under Section 63, could it be said that the Commission’s power to regulate tariff was completely done away with, held inter alia that regulatory power of the Central Commission under Section 79(1)(b) was a general one, and when the Commission adopts tariff under Section 63, it does not dehors its general regulatory power.

High Court, taking a cue from the said observations made by the Supreme Court, hold that, the general regulator power of the State Commission under Section 86(1) (b) is the source of power to regulate the electricity purchase and procurement process, including the power to determine or adopt the tariff. High Court further observed that in a situation where there are no guidelines framed at all or where guidelines do not deal with a given situation, the

Commission’s general regulatory power could be exercised.

Conclusion and Observation

1) Before dealing with the ratio[1] of the case, I would like to deal with one interesting observation of the case which is an obiter dicta[2] of this case. High Court observed that the Commission should not suo moto ask Procurer to approach it for initiation of the bidding process.

2) High Court validated bidding process in light of the Supreme Court Judgment. I see a danger here. This judgment has not only validated the bidding process but it has also validated exercise of the regulatory power of the Commission while dealing with the Section 63 bidding process till that there is no bidding guidelines issued by the Commission.

In layman terms, even if procurer submits a competitive bidding discovered tariff, the Commission is not required to follow the mandatory provisions of Section 63 (Which requires him to adopt the tariff if it has been discovered by transparent bidding process) and the Commission in the garb of exercising regulatory power, will compel developers to renegotiate discovered tariff and the wind sector will also face uncertainty as it is being faced by solar power developers in other states where Commission is negotiating with developers on tariff post completion of negotiation process at the bidding stage.

There is no end to it and no tariff is a lowest tariff.

With all due respect to the High Court, it should have gone in detail analysis rather than showing its helplessness in relying on obiter of the Energy Watchdog. It is well settled principle that Obiter is a mere observation and it is not being considered as a precedent.

3) Association should consider approaching Apex Court for further clarity citing examples of solar sector. The bigger question to answer:

“Can a ratio of the Judgment of GUVNL Supreme Court Case override obiter of Energy Watchdog?”.

In my humble opinion, this should be answered in negative.

[1] Part of the case which is being considered precedent

[2] observation of the court, not having any binding value