LI Network
Published on: November 14, 2023 at 17:31 IST
The Supreme Court reiterated the importance of interpreting commercial contracts in line with the original intent of the parties involved.
The court emphasized that deviation from the plain terms of a contract is only justified when it serves business efficacy better. This principle was underscored in the case of Transmission Corporation of Andhra Pradesh Ltd v. GMR Vemagiri Power Generation Limited.
The matter, brought before the Bench comprising Chief Justice of India DY Chandrachud, Justices JB Pardiwala, and Manoj Misra, pertained to a Power Purchase Agreement (PPA) between Maharashtra State Electricity Distribution Company Limited and Ratnagiri Gas and Power Private Limited & Others.
The dispute arose when the first respondent, due to a decline in gas supply, entered into a Gas Supply Agreement (GSA) with GAIL for Recycled Liquid Natural Gas (RLNG). The appellant argued that this action violated the terms of the PPA, leading to a refusal to pay fixed capacity charges.
The Court, examining the clauses of the PPA, highlighted that a transition from one primary fuel to another, like RLNG, could be done unilaterally without the appellant’s agreement. It concluded that the deviation from the plain terms of the contract was not warranted as the appellant’s consent was not required for the RLNG capacity declaration.
Furthermore, the Court emphasized that reading implied conditions contrary to clear contractual provisions is permissible only in specific circumstances.
It dismissed the appeal, noting that since the gas supply shortfall was beyond the parties’ control, deviation from the contract’s plain terms was not justified and went against business efficacy.
In summary, the Supreme Court’s ruling underscores the need for adherence to contractual terms and deviation only when it enhances business efficacy, providing clarity on the interpretation of commercial contracts.
