M/S HANJONG ENERGY AND TECHNOLOGY PRIVATE LIMITED v. KERALA STATE ELECTRICITY BOARD

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE SMT. JUSTICE P.V.ASHA** **WEDNESDAY, THE 27TH DAY OF MARCH 2019 / 6TH CHAITHRA, 1941** ## **WP(C).No. 34815 of 2014-B** ## **PETITIONER/S:** **M/S.HANJONG ENERGY AND TECHNOLOGY PRIVATE LIMITED AISWARYA BUSINESS COMPLEX, FLAT NO.31, 32 AND 33,RAILWAY STATION ROAD, OLAVAKKODE, PALAKKADUREPRESENTED BY ITS MANAGING DIRECTOR MR.D.SASEENDRAN @ SHASHI PALAZHI-678001** **BY ADVS. SRI.BABU KARUKAPADATH SMT.M.A.VAHEEDA BABU SRI.J.RAMKUMAR SRI.KANDAMPULLY RAHUL SRI.K.A.NOUSHAD SRI.MITHUN BABY JOHN SRI.P.U.VINOD KUMAR** ## **RESPONDENT/S:** **THE KERALA STATE ELECTRICITY BOARD VYDYUTHI BHAVAN, PATTOM, THIRUVANANTHAPURAM,PIN - 695 004. REPRESENTED BY ITS SECRETARY.** **BY ADVS. SRI.RAJU JOSEPH (SR.) SRI.K.T.PAULOSE, SC, KSEB SRI.RAJU JOSEPH (SR.)** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 27.03.2019, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** ## **P.V.ASHA,J. ---------------------------W.P.(C) No.34815 of 2014 ---------------------------Dated this the 27[th] day of March, 2019** ## **JUDGMENT** The respondent – the Kerala State Electricity Board, had as per Ext.P1 notification, invited Expression of Interest (EoI) from investors desirous of setting up power plants under independent Power Project Model based on renewable technology within the State, of and above the capacity of 50 MW each, in order to identify potential investors in the field of renewable energy. 2. The petitioner submitted his EoI pursuant to Ext.P1 notification. The eligibility criteria prescribed in Ext.P1 was as follows: _“Eligibility criteria_ _1. Developers of renewable projects under this EoI shall be body corporates, private individuals or LSG Institutions._ _2. Net worth in the case corporates and individuals shall be atleast 0.5 crore/MW of offered capacity. In the case of LSG Institutions, the financial credibility shall be decided by the Government. 3. The developer or his technology partner should have at least 3 years experience in the field of implementation of renewable power projects._ **==> picture [398 x 9] intentionally omitted <==** W.P.(C) No.34815/2014 **==> picture [12 x 8] intentionally omitted <==** shortlisting after evaluation on the basis of credentials, capability to set up and run the project and readiness for the same. The points allocated for the purpose of shortlisting against a maximum score of 100 were also provided therein. It further provided that the shortlisted EoI providers would be required to quote their annualised levellised tariff for the next 10-20 years. The selection was to be made from among the EoI providers quoting less than the average pooled power purchase cost for REC mechanism approved by KSERC. The last date for receipt of EoI was fixed as 30.11.2012. 4. The petitioner remitted a sum of Rs.1 crore by way of Demand Draft towards security. The respondent shortlisted the petitioner for consideration for entering into Power Purchase Agreement (PPA). Ext.P2 Letter of Intent (LoI) was issued on 15.3.2013 to purchase power from the proposed project on the conditions mentioned in the documents supplied therein. It was further stated that the company shall enter into PPA with KSEB within 180 days from the date of issuance W.P.(C) No.34815/2014 :4: of the LoI, failing which EMD remitted by the company shall be forfeited. The petitioner was asked to submit the documents mentioned therein at least 7 days prior to the scheduled date of signing of the PPA. The petitioner submits that there were a series of discussions between the petitioner and the respondent for entering into the PPA and the time for executing the same was being extended. The petitioner further submits that the respondent insisted that the entire land required for the project shall be either owned or taken on lease by the petitioner and the the terms of PPA could not be finalised. It is their further contention that in Ext.P2 LoI the condition incorporated was that the net worth of the company shall be certified by a Chartered Accountant and therefore the petitioner had submitted documents signed by the Chartered Accountant evidencing the net worth more than Rs.25 crores as required in Ext.P2. But the respondent discarded the same and concluded that the net worth of the company was only Rs.52,43,278/-. Ext.P3 was thereafter issued informing the petitioner ## W.P.(C) No.34815/2014 **==> picture [12 x 8] intentionally omitted <==** that the Board had accorded sanction to forfeit the Earnest Money Deposit (EMD) amounting to Rs.1 crore provided by the petitioner against the price bid dated 4.1.2013 invited for procurement of energy. It was stated therein that in the net worth statement furnished by the petitioner, the net worth of the company was stated as Rs.25,52,43,278/- of which Rs.25 crore is the contribution of the company in tangible assets, without which the net worth is Rs.52,43,278/only. It was stated that the petitioner had not produced any supporting proof to substantiate the claims in the statements. Moreover, it was stated that since the company has only 2 years of investment history, its net worth calculated at Rs.25 crore based on the tangible assets is neither sufficient nor credible. Therefore, it was stated that the Chief Engineer had recommended to forfeit the EMD amounting to Rs.1 crore provided by the company. In this letter it was also stated that the petitioner company was the only company to submit the price bid documents pursuant to Ext.P1 notification though 15 responses were ## W.P.(C) No.34815/2014 **==> picture [12 x 8] intentionally omitted <==** received and 7 were shortlisted for the second stage of the process. The petitioner is challenging Ext.P3 order by which the EMD is forfeited. 5. According to the petitioner, the price bid was submitted and it was agreed to enter into the PPA under the bonafide belief that it was shortlisted on being satisfied of its net worth or else it would not have deposited the security amount of Rs.1 crore for entering into PPA. It is alleged that when the petitioner had complied with the conditions in Ext.P1 as well as Ext.P2 there was no justification for issuing Ext.P3 order. The petitioner's case is that the requirement in Exts.P1 and P2 was to furnish the net worth through the Chartered Accountant. Clauses (a) to (c) of clarification No.6 in Ext.P2 provided as follows: “ _a) Bank statement, shareholding pattern, Profit & Loss Account, and net worth (Certified by CA). b) Net worth Infusion for newly incorporated company (Certified by C.A). c) Controlling shareholding details for the company (Certified by CA)._ ” 6. According to it, the terms of PPA were never ## W.P.(C) No.34815/2014 **==> picture [12 x 8] intentionally omitted <==** finalised though it was ready to execute the same, and the respondent company was changing their stand. Petitioner also submits that the respondent has not suffered any loss or damage due to the non-execution of the PPA by the petitioner or by its participation in the EoI, or by any of its act or omission and therefore the forfeiture of the EMD is illegal and would amount to unlawful enrichment. The petitioner challenges the forfeiture ordered and seeks a direction to the respondent to return the same along with interest. 7. The respondent Board has filed a counter affidavit. A preliminary objection is raised as to the maintainability of the Writ Petition. It is stated that the investment in the renewable energy sector pursuant to invitation of interest by the Board is purely a commercial activity governed by the terms of the contract, which does not involve any public law element. Therefore, the remedy available to the petitioner is before the civil court and not before this Court under Article 226, as held in _**Joshie**_ _**Technology INC v. Union of India**_ [(2015) 7 SCC 728]. ## W.P.(C) No.34815/2014 :8: It is stated that EoI was invited as the first stage to identify and shortlist potential investors with sufficient credentials and capability to set up and operate renewal energy plants of and above the capacity of 50 MW and with ready land in their hand; Out of the 15 responses received pursuant to Ext.P1 notification, 7 were shortlisted; no EMD was collected from any of the investors at the first stage and all the participants were at liberty not to participate in the second part; the price bid was sent to all the shortlisted investors asking them to quote for tariff of electricity along with the terms and conditions thereof, as provided in Ext.R1(a); they were also asked to provide EMD for quoting their final price bid, which was fixed at Rs.2 lakhs per MW capacity; petitioner had deposited an amount of Rs.1 crore towards this; after considering the EoI, Letter of Intent was issued on 15.3.2013 and the petitioner was asked to sign PPA within 6 months; a draft purchase agreement was also furnished to the petitioner but the petitioner failed to execute the PPA after satisfying all the stipulated W.P.(C) No.34815/2014 **==> picture [12 x 8] intentionally omitted <==** conditions and the forfeiture is ordered on the basis of an agreement executed by the petitioner at the time of submitting the price bid; the final draft PPA was sent to the petitioner well in advance of the submission of price bid; petitioner was therefore very much aware of the terms and conditions in the PPA. Along with IA No.01/2019 the respondents have produced Ext.R1(i)agreement entered into between the petitioner and the Board. As per clause (b) of that agreement the Board shall have power and authority to appropriate the earnest money provided by the bounden in the form of cash deposit in case the bounden fails to execute the PPA, subject to fulfilment of all the pre requisites. It is stated that the Board had requested the petitioner to furnish the title deed/lease agreement, no encumbrance certificate and possession certificate of the land; respondent has not imposed any further stringent conditions, as alleged; the petitioner had to provide details of net worth, as per paragraph D.5.1 of the price bid document; the net worth calculation of the company is also provided in clause C.7 of the W.P.(C) No.34815/2014 **==> picture [18 x 8] intentionally omitted <==** price bid document -Ext.R1(a) according to which the developer company should have a net worth of Rs.50 lakh per MW of the capacity offered through this bid; the calculation was also given there; the power purchase agreement was to be executed within 180 days of the LoI; but the petitioner continued to seek time which was extended by three months up to 11.12.2013, without any change in the conditions of price bid or LoI; therafter again extended to 31.12.2013 and 31.3.2014 respectively, based on the request of petitioner; thus petitioner had been delaying the process seeking extension of time and in those circumstances the respondent Board decided to close the matter and to forfeit the earnest money of a sum of Rs.1 crore deposited during the price bidding stage. It is stated that the forfeiture of EMD is based on the contract condition agreed upon by the petitioner and that the EMD was collected from bidding investors irrespective of any loss or damage to the party inviting bid. 8. Petitioner seeks a direction to the respondent to refund the EMD of Rupees One crore along with W.P.(C) No.34815/2014 **==> picture [17 x 8] intentionally omitted <==** interest at the rate of 12% per annum towards the detention of the same, stating that the respondent Board is utilising the same for commercial purpose and therefore interest is payable on it at the rate of 12% per annum. 9. The learned counsel for the petitioner relied on the judgments of this Court in _**Soji Peter vs. KB Vijayan & Ors. : 2017 (3) KLJ 816: Kailash Nath Associates vs. Delhi Development Authority and another : (2015) 4 SCC 136, Delhi Development Authority vs. Grihsthapana Cooperative Group Housing Society Ltd. : 1995 Supp (1) SCC 751**_ , _**Thressiamma vs. Union of India : 1999 (2) KLT 683**_ , _**State of Kerala vs. United Shippers & Dredgers : 1982 KLT 738**_ , _**Ravindran**_ _**vs. Public Works Department : 2017 (4) KLT 759,** etc_ and argued that EMD cannot be forfeited unless any legal injury is caused _**.**_ On the other hand the learned Senior Counsel for the respondent Board relied on the judgments of the apex court in _**Joshi Technologies**_ _**International Inc. vs. Union of India and others : (2015) 7 SCC 728**_ and argued that a writ petition will W.P.(C) No.34815/2014 **==> picture [18 x 8] intentionally omitted <==** not lie in respect of such contract matters, under Article 226 of the Constitution of India. It was argued that when the writ petition is not maintainable it is not necessary to go into the judgments relied on by the petitioner and that those judgments would not apply to the circumstances of this case. 10. It is therefore necessary to examine the contentions relating to the maintainability of the writ petition with reference to the law laid down by the apex court in the judgment in _**Joshy Technologies'case.**_ In that judgment the apex court has after discussing various judgments, laid down the parameters for entertaining writ petitions in contractual matters. It is pertinent to note that KSEB Limited is a Public Limited Company owned by the Government. Though it is held that normally writ will not lie in contractual matters especially when one of the parties is a private party, it is also held that the State or the instrumentality of the State is bound by the obligations of fairness. It is reiterated that if there are factual disputes where assessment of evidence is W.P.(C) No.34815/2014 **==> picture [18 x 8] intentionally omitted <==** required, appropriate remedy is not by way of a writ petition under Article 226 of the Constitution of India but by way of alternate remedy of civil suit, etc. It was held that writ can be issued where executive action is unsupported by law or where there is denial of equality before law or equal protection of law even in respect of a corporation. It is true that the apex court has also held that if the contract between private party and the State/instrumentality and/or agency of the State is under the realm of a private law and there is no element of public law, the normal course for the aggrieved party, is to invoke the remedies provided under ordinary civil law rather than approaching the High Court under Article 226 of the Constitution of India and invoking its extraordinary jurisdiction; where the matter falls purely in private field of contract, writ petition is not maintainable; but it is held that each case has to be examined, on its facts whether the contractual relations between the parties bear insignia of public element and once there is such a finding the matter can be examined by the W.P.(C) No.34815/2014 :14: High Court in writ petitions under Article 226 of the Constitution of India to see whether action of the State and/or instrumentality or agency of the State is fair, just and equitable or that relevant factors are taken into consideration and irrelevant factors have not gone into the decision-making process or that the decision is not arbitrary. In this case also nobody has a case that the petitioner has entered into any statutory contract. But it is relevant to note that the respondent is a Public Limited Company. This writ petition has been pending since the year 2015. Though a contention is seen raised in the counter affidavit that is not seen pressed any time before the final hearing of the case in 2019. The petitioner projects the forfeiture of EMD as an arbitrary action on the part of the respondent. It is a case where there are no factual disputes. The contention raised by Sri.Raju Joseph, the learned Senior Counsel for the respondent as to the maintainability of this writ petition under Article 226 could have been accepted if there were any factual disputes,in the matter. As rightly contended by W.P.(C) No.34815/2014 **==> picture [18 x 8] intentionally omitted <==** Sri.Babu Karakapadath, the learned counsel who appeared for the petitioner, at this distance of time it would not be proper to relegate the petitioner to his remedies before civil court especially when the respondent is cent percent Government owned company which is not expected to act arbitrarily. In _**Thressiamma v. Union of India**_ [1999 (2) KLT 683], this Court held that availability of an alternate remedy is not a bar for entertaining a Writ Petition, that too, after lapse of several years. There this Court was considering an Original Petition, which was filed in 1993, in the year 1999. Though an objection was raised therein as to the maintainability of the Original Petition under Article 226, this Court found that the petition under Article 226 will lie when there is violation of any fundamental rights, act or rules or the principles of natural justice. It was also found that despite the objection the Original Petition was admitted in the year 1999 and 4 years had already elapsed. In the present case the writ petition was filed in the year 2014. Even though objection is seen ## W.P.(C) No.34815/2014 **==> picture [18 x 8] intentionally omitted <==** raised in the counter affidavit filed in the year 2016, it would appear that the objection was never pressed into service seriously, at any time before the final hearing in 2019. 11. What is to be determined in this writ petition is whether there can be a forfeiture in the absence of any injury or loss caused to the KSEB, just because there is a clause in the contract. Petitioner has specifically alleged that no loss or damage was caused to the respondent by any of the acts or omissions on the part of the respondent. The only answer to it in the counter affidavit is in paragraph 28 which reads as follows: _“28. The forfeiture of Earnest Money Deposit is based on contract condition agreed by the petitioner. Earnest Money Deposit was collected from bidding investors for ensuring the claim made by the bidder irrespective of any loss or damage to the party inviting bid. This is a very common practice fully acceptable by law of the land.”_ ## 12. There is no dispute with respect to the execution of agreement or even regarding forfeiture. The allegation that no loss or damage is caused to respondent is not disputed. In the event of a dispute W.P.(C) No.34815/2014 **==> picture [18 x 8] intentionally omitted <==** on any of those aspects, a writ petition would not lie against respondent. 13. In the judgment in _**State of Kerala v. United Shippers & Dredgers**_ [1982 KLT 738], this Court after considering a series of judgments and various provisions contained in the Contract Act i.e Sections 73 to 75, held that if the breach of contract has not resulted in any harm, loss or damage to the other party, the question of recompensing him would not arise. Sec.73 only provides for compensation for loss or damage caused. Therefore, however grievous or serious an act of breach may be, it does not give rise to a right of compensation if it did not result in any loss or damage. This Court also explained what loss or damage means and held that loss would involve a material loss and damage means loss or harm occurring in fact. Every breach of contract does not result in actual loss or damage. It was further held that the compensation payable under Sections 73 and 75 is only damage caused by the breach and not by the mere act of breach. Discussing the historical background of law W.P.(C) No.34815/2014 :18: relating to compensation for breach of contract, it was further held that Sec.74 of the Act exempts one from the responsibility where there is no proof towards the actual extent of loss or damage. Relying on the judgment of the Apex Court in _**Fatch Chand v. Balkishan Das**_ [(1964) 1 SCR 515], _**Maula Bux v. Union of India**_ [AIR 1970 SC 1955], _**Union of India v. Rampur Distillery & Chemical Co. Ltd.**_ [AIR 1973 SC 1098], etc. it was held that the party complaining breach of contract and claiming compensation is entitled to succeed only on proof of legal injury and Sec.74 is only supplementary to Section 73 and it does not make any departure from the principle behind Section 73. It was held that in a particular case where the contract itself stipulates for payment of a sum of money on the breach of contract or any other stipulation, the principle under Section 74 will have to be applied and party suffering from the breach would be entitled to only a reasonable compensation. It was also held that in a case where the party complaining of breach of contract has not suffered any legal injury, there is W.P.(C) No.34815/2014 **==> picture [18 x 8] intentionally omitted <==** nothing to recompense and therefore he would not be entitled to compensation. In that case this Court held that State Government did not have any right to levy or collect any sum of money from the respondent contractor. Of course, that was a case which came up as an appeal against an award passed in an arbitration O.P. 14. In _**Kailash Nath Associates V DDA: (2015)4 SCC**_ _**137**_ , the apex court was considering a case where appellant therein made the highest bid for a Plot in an auction conducted by Delhi Development Authority and deposited a sum of Rs.78,00,000/- being 25% of the bid amount, with DDA, being earnest money under the terms of the conditions of auction. After analysing the judgments including those in _**Fatheh Chand vs. Balkishan Dass: AIR 1963 SC 1405, Maula Bux vs. Union of India : (1969) 2 SCC 554 and Shree Hanuman Cotton Mills and another vs. Tata Air Craft Ltd. : AIR 1970 SC 1986,**_ etc, it was held as follows: _**43.** On a conspectus of the above authorities, the law on compensation for breach of contract under Section 74 can be stated to be as follows:_ _**43.1.** Where a sum is named in a contract as a_ W.P.(C) No.34815/2014 :20: _liquidated amount payable by way of damages, the party complaining of a breach can receive as reasonable compensation such liquidated amount only if it is a genuine pre-estimate of damages fixed by both parties and found to be such by the court. In other cases, where a sum is named in a contract as a liquidated amount payable by way of damages, only reasonable compensation can be awarded not exceeding the amount so stated. Similarly, in cases where the amount fixed is in the nature of penalty, only reasonable compensation can be awarded not exceeding the penalty so stated. In both cases, the liquidated amount or penalty is the upper limit beyond which the court cannot grant reasonable compensation._ _**43.2.** Reasonable compensation will be fixed on wellknown principles that are applicable to the law of contract, which are to be found inter alia in Section 73 of the Contract Act._ _**43.3.** Since Section 74 awards reasonable compensation for damage or loss caused by a breach of contract, damage or loss caused is a sine qua non for the applicability of the section._ _**43.4.** The section applies whether a person is a plaintiff or a defendant in a suit._ _**43.5.** The sum spoken of may already be paid or be payable in future._ _**43.6.** The expression “whether or not actual damage or loss is proved to have been caused thereby” means that where it is possible to prove actual damage or loss, such proof is not dispensed with. It is only in cases where damage or loss is difficult or impossible to prove that the liquidated amount named in the contract, if a genuine pre-estimate of damage or loss, can be awarded._ _**43.7.** Section 74 will apply to cases of forfeiture of earnest money under a contract. Where, however, forfeiture takes place under the terms and conditions of a public auction before agreement is reached, Section 74 would have no application._ 15. In this case respondents do not have any case that they suffered any loss or damage. Therefore the question of “recompensing” does not arise. A Division Bench of this court in the judgment in _**Soji Peter vs.**_ W.P.(C) No.34815/2014 :21: _**KB Vijayan & Ors. : 2017 (3) KLJ 816**_ followed all the aforesaid judgments and held that the party complaining breach would not be entitled to the sum shown as liquidated damages unless actual loss or damage is caused. Therefore even though Ext.R1(i) shows that an agreement is entered into between the parties when the respondent does not have a case that any loss is sustained by them, the petitioner is entitled to get back the earnest money from the respondent. 16. The next question is whether the petitioner is entitled to interest on the amount deposited. The case of the petitioner is that the respondent is using the amount remitted by petitioner for commercial purposes. In the light of the judgment in _**Ravindran V Public Works Department 2017(4) KLT 759**_ , the petitioner would be entitled to interest at the rate of 9% per annum. 17. The writ petition is accordingly allowed directing the respondent to refund the sum of Rupees One crore to the petitioner along with interest at the rate of 9% per annum from the date of Ext.P3 i.e from 14.05.2014 within a period of 2 months from the date of W.P.(C) No.34815/2014 **==> picture [18 x 8] intentionally omitted <==** receipt of a copy of the judgment. **Sd/P.V.ASHA JUDGE** Rtr/rkc W.P.(C) No.34815/2014 :23: ## **APPENDIX** ## **PETITIONER'S/S EXHIBITS:** **EXHIBIT P1** **EXT.P-1: A TRUE COPY OF THE NOTIFICATIOIN ISSUED ON BEHALF OF THE RESPONDENT K.S.E.B BY ITS CHIEF ENGINEER.** **EXHIBIT P2 EXT.P-2: THE PETITIONER SUBMITTED THE PRICE BID AS REQUIRED BY THE KSEB. A TRUE COPY OF THE LETTER OF INTENT DATED 15.3.2013 ISSUED BY THE KSEB TO THE PETITIONER** **EXHIBIT P3 EXT.P-3: A TRUE COPY OF THE ORDER DATED 14.5.2014 OF THE RESPONDENT KSEB. RESPONDENTS' EXHIBITS** **EXT.R1A: TRUE COPY OF THE PRICE BID DOCUMENT ISSUED BY THE KSEB** **EXT.R1B: TRUE COPY OF THE DRAFT POWER PURCHASE AGREEMENT BETWEEN PETITIONER AND KSEB** **EXT.R1C: TRUE COPY OF THE STATEMENT SHOWING NET WORTH AS ON 26.03.2014** **EXT.R1D: TRUE COPY OF THE LETTER ISSUED BY THE PETITIONER DT.8.7.13** **EXT.R1E: TRUE COPY OF THE LETTER ISSUED BY THE PETITIONER DT.11.12.13** **EXT.R1F: TRUE COPY OF THE LETTER ISSUED BY THE PETITIONER DT.31.12.13** **EXT.R1G: TRUE COPY OF THE LETTER ISSUED BY THE PETITIONER DT.10.1.14** **EXT.R1H: TRUE COPY OF THE LETTER ISSUED BY THE PETITIONER DT.31.3.14** **EXT.R1:TRUE COPY OF THE AGREEMENT NO.6/2012-13 EXECUTED** W.P.(C) No.34815/2014 :24: **BETWEEN THE KSEB AND THE PETITIONER DT.6.3.13**