The Karnataka State Electricity Board signed a power purchase agreement with an American company, Cogentrix Energy, in 1992 to build a 1000 MW thermal power plant in Mangalore. Issues emerged regarding violations of state government orders in the agreements signed. A writ petition was filed seeking an investigation into allegations of wrongdoing. The state high court ordered a CBI enquiry, but the supreme court stayed this order, finding that a criminal investigation cannot be ordered based merely on conjecture without evidence of a known crime or reasonable suspicion. The supreme court set aside the high court's order.

2. In 1992, the Karnataka State Electricity Board signed a power purchase
agreement for a thousand MW thermal power plant at Mangalore with
an American company, cogentrix energy Inc. Karnataka State Electricity
Board promised to purchase power from cogentrix for a period of 30
years.
The state cabinet issued an office order authorising the state government
to enter into MOU for 250 MW project in Mangalore and Bangalore. In July
1992, in violation of Government of Karnataka order, memorandum of
understanding where signed with cogentrix for Two 500 MW projects. Also
in violation of its own orders, Government of Karnataka, in the MOU with
cogentrix,allowed the company to bring in any partners the wished..

3. In February 1993,a committee of secretaries of the state government
recommended the approval of the project. In March 1993, a government order
permitted cogentrix to sell power directly to industrial units at mutually
negotiated rates. Subsequently, this order was overturned and the government
asked Karnataka State Electricity Board to buy all power from cogentrix.
The plant at Bangalore was cancelled and the plant at Mangalore was
allowed to double its capacity to 1000 MW.
With the shift of location, a new set of problems emerged. Since all the
power generated generated in Mangalore locally was not required the
power has to be transmitted to Bangalore. This transmission of electricity
from mangalore to Bangalore required new transmission lines, which
called for an additional investment of 270 crores.

4. ISSUES
The state government was to sign a power project agreement
with cogentrix. In January 1994, the central government made it a
precondition that the PPA be vetted by independent Experts if it
has to issue a counter guarantee. A team of experts from India
together with American and German firms issued a report that
was severely critical of the PPA. They were of the opinion that the
PPA was one sided and that the capital cost of the plant was too
high.
In August 1995 a company from Hong Kong, China and power was
brought in as a co sponsor in the project. The Memorandum of
understanding entered between the two parties was not disclosed. The
balance sheet of the mangalore Power Corporation for the period 1995
to 96, did not show any expenses incurred in India or abroad. However
between 92-96, the balance sheet of cogentrix showed approximately
175 crore had been incurred as developmental expenses on the Indian
project.

5. Writ petition was filed in the High Court of Karnataka by Arun Kumar
Agarwal and S.K. Kantha seeking for investigation by appropriate
agencies into the various allegations made by them and to initiate
criminal proceedings against the guilty persons as per law. It was also
prayed to 'set aside the power project entered by Karnataka
Electricity Board (KEB) with Mangalore Power Corporation (MPC) and
real lot the power project through an open bidding process
In response to the petition,a division bench of the High Court issued a
directive for a CBI enquiry into the matter. However, supreme Court
bench stayed this order of the Karnataka High Court.

6. SUPREME COURT JUDGEMENT
INTHE SUPREME COURT OF INDIA
C.A. No. 7231 of 1999
Decided On: 13.12.1999
Appellants:State of Karnataka
Vs.
Respondent: Arun Kumar Agarwal & Ors.
Court found High Court's Order erroneous - acts of persons in
such case should not be subject of criminal investigation unless crime is
reported to have committed or reasonable suspicion thereto arises -
investigation cannot be subject of merely conjectures and surmises -
impugned Order of High Court set aside.

7. It is difficult to visualise that when an agreement had been entered
into with a foreign company it has been done under suspicious
circumstances, particularly when it had stood the test of scrutiny
under three different Governments headed by at least three
different Chief Ministers and when the examination of
theproject and its approval was considered by different statutory
and other agencies of the Government of India. Could it still be said
that there had been kickbacks to any one of them or all of them in
the matter of entering into a Memorandum of Understanding or in
continuation of the same?The law, in fact, is otherwise.

8. The acts of persons will not be subject of criminal investigation
unless a crime is reported to have been committed or reasonable
suspicion thereto arises. On mere conjecture or surmise as a flight of
fancy that some crime might have been committed, somewhere, by
somebody but the crime is not known, the persons involved in it or
the place of crime unknown, cannot be termed to be reasonable
basis at all for starting a criminal investigation. However,
condemnable be the nature or extent of corruption in the country,
not all acts could be said to fall in that category. The attempt made
by the High Court in this case appears to us to be in the nature of
blind shot fired in the dark without even knowing whether there is a
prey at all.
In the result, we think that the order made by the High Court has got to
be set aside