PPA Can Only Be Read In Manner As To Be Aligned With State Regulations: Supreme Court Rejects Plea Against APTEL’s Decision

The Supreme Court dismissed a Civil Appeal filed by Tamil Nadu Generation and Distribution Corporation Ltd. (TNGDCL) against the Judgment of the Appellate Tribunal for Electricity (APTEL).

The Court said that Power Purchase Agreement (PPA) can only be read in manner as to be aligned with State Regulations.

The two-Judge Bench of Justice J.B. Pardiwala and Justice K.V. Viswanathan observed, “The further argument that the State Regulations came only after the amended PPA also is not appealing. As rightly found by the fora below, the Central Regulations operate as guiding factors under Regulation 4 of the State Regulations and in any event when the State Regulations came into force on 03.08.2005, the PPA can only be read in a manner as to be aligned with the State regulations. That is the mandate of the law.”

The Bench rejected the argument based on estoppel and waiver advanced by the TNGDCL.

Senior Advocate and AAG Amit Anand Tiwari appeared on behalf of the Appellant, while Senior Advocates Shyam Divan and Buddy A. Ranganadhan appeared on behalf of the Respondent.

Brief Facts

The Tamil Nadu Electricity Regulatory Commission (TNERC) and the APTEL had concurrently found in favour of the Respondent company. It was held that the power generated by the Respondent by the open cycle gas turbine for the relevant period and supplied to the TNGDCL-Appellant could not be termed as “infirm power” and that it could only be treated as “firm power”. The consequence of the said finding was that the Commercial Operation Date (COD) for the Gas Turbine in Open Cyc006Ce was held to be 29.10.2005 and since power was delivered on a continuous basis, the Appellant was ordered to pay fixed charges for the relevant period.

Being aggrieved, the Appellant was in Appeal before the Apex Court. The principal argument was that any sale of electricity prior to ‘COD’ would be infirm power and would entail the supplier only to variable charges i.e., the cost of the fuel. To support this, the Appellant relied on the clause in the PPA originally entered on 29.04.1998 and undisputedly amended on 25.08.2004. According to the Appellant, under the PPA, as amended, date of commercial operation was the day on which the project achieved entry into commercial operation i.e., 01.07.2006.

Reasoning

The Supreme Court in view of the above facts, said, “We have extended the definition of ‘COD’ as it prevails under the regulations. … The argument of the appellant that capacity testing and reliability testing was done between 28.06.2006 and 01.07.2006 and COD achieved only on 01.07.2006 also is not tenable.”

The Court noted that the letter of the Respondent dated 10.11.2005 clearly brings out the fact that w.e.f. 29.10.2005, they followed the commissioning procedures, reached the baseload of the gas turbine generator and that the unit along with its auxiliaries was running trouble-free and will be able to deliver continuously power at 30 MW under open cycle operation on a firm basis and in fact, there was continuous supply from 29.10.2005.

“Further, the judgment in The State of Himachal Pradesh (supra) is distinguishable inasmuch as in the said case, this Court found that legal effect of cap on free supply of power was not to override the contractual obligations between the parties. Further, it was held that the regulation therein covered a situation where, in cases where the obligation to supply free power to the State was in excess of 13%, only free power up to 13% would be considered for tariff determination”, it further observed.

The Court also noted that the Court understood the contractual obligation to supply power in excess of free power as a form of ‘royalty’ payable to the State in lieu of being allowed to utilize river water which was a public and common resource.

“There was considerable debate at the Bar as to whether M/s Aban Power Ltd. was identically situated. We have considered the rival submissions. Considering that we have independently found for the respondent and its entitlement for fixed charges for the relevant period, the aspect of whether M/s Aban Power Ltd. was identically situated need not detain us any further”, it held.

Conclusion

The Court found no good ground to interfere with the impugned Judgment and said that the Judgment passed by TNERC directing that fixed charges shall be payable for the relevant period as affirmed by the APTEL in the impugned Judgment calls for no interference and the said directions are affirmed.

“On 25.08.2014, while passing an interim order staying the judgment of the Tribunal, this Court directed the appellant to pay a sum of Rs. 50 Crores to the respondent, without prejudice to the rights and contentions of either party. It is not disputed that the said amount has been paid. In terms of our directions, the balance amount, if any, shall also be paid to the respondent within a period of 12 weeks from today”, it directed and concluded.

Accordingly, the Apex Court dismissed the Appeal.

Cause Title- Tamil Nadu Generation and Distribution Corporation Ltd. v. M/s Penna Electricity Limited (Neutral Citation: 2025 INSC 1439)

Appearance:

Appellant: Senior Advocate and AAG Amit Anand Tiwari, AOR Sabarish Subramanian, Advocates Saushriya Havelia, Vishnu Unnikrishnan, Tanvi Anand, Jahnavi Taneja, Pranjal Mishra, and Arjoo Rawat.

Respondent: Senior Advocates Shyam Divan, Buddy A. Ranganadhan, AOR Hasan Murtaza, Advocates Satyaseelan, Nina Nariman, Sameer Sharma, Shefali Tripathi, Yashvardhan Singh, Shaishir Divatia, Ankit Kumar Sinha, and Sriyut Shukla.

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