Karnataka Power Corporation Limited vs EMTA Coal Limited & Anr.
Background
Karnataka Power Corporation Limited (KPCL) had a coal-mining joint venture (KEMTA) with EMTA Coal Limited to supply coal to its thermal power plants. A 2013 report of the Comptroller and Auditor General (CAG) said that "coal rejects" during processing should be valued at a minimum 10% of production, implying KPCL was owed roughly Rs. 52.37 crore. Although KPCL had itself initially objected to how the CAG calculated this figure, after the CAG finalised its report, KPCL turned around and demanded that exact amount from KEMTA, and also made deductions from EMTA's bills on the same basis. EMTA challenged both the demand and the deductions in writ petitions before the Karnataka High Court, which ruled in EMTA's favour. KPCL appealed to the Supreme Court.
Decision Breakdown
The Supreme Court noted that ordinarily it might examine whether the High Court should have entertained writ petitions over what was essentially a contractual/commercial dispute involving a State instrumentality, but declined to go into that question given the dispute's long history (the underlying 2002 contract, and the years since the 2013 CAG report). On the merits, the Court found that KPCL had failed to explain why it first objected to the CAG's coal-rejects calculation and then relied on the very same calculation to demand money from EMTA. It also found no contractual clause authorising the deductions KPCL had made for "washing charges," and no evidence that EMTA's coal supply was ever actually deficient in quality. Finding no basis to interfere with the High Court's judgment, the Supreme Court dismissed KPCL's appeals.
Lesson Learnt
A party cannot object to a report or calculation when it is inconvenient and then rely on that same report when it becomes convenient: such an unexplained change of position will not be accepted by the courts, and contractual deductions must be clearly authorised by the terms of the contract, not merely asserted.