Punjab State Grid Code| Strict Liability Penalty For Failure To Demonstrate Declared Power Capacity Does Not Require Mens Rea: Supreme Court
The Court restored penalty against Talwandi Sabo Power Ltd., holds “gaming” and failure to demonstrate declared capacity are distinct violations under Punjab State Grid Code.
The Supreme Court has held that a generating station’s failure to demonstrate its declared power generation capacity, when called upon by the State Load Despatch Centre (SLDC), attracts a strict civil liability penalty and does not require proof of mens rea, deliberate intent, or illegal profiteering. Restoring the findings of the Punjab State Electricity Regulatory Commission (SERC), the Court ruled that gaming of the grid system and failure to demonstrate declared capacity are distinct violations under the Punjab State Grid Code, 2013.
The Court observed that while allegations of gaming require proof of intentional misdeclaration and undue commercial gain after a due inquiry complying with principles of natural justice, penalties for failure to demonstrate declared capability under Regulation 11.3.13 operate independently as a strict liability mechanism. The Bench clarified that the provision is intended to ensure the integrity and reliability of power scheduling and grid operations in real time.
Justice Sanjay Kumar and Justice K. Vinod Chandran in appeals filed by Punjab State Power Corporation Limited and the Punjab State Load Despatch Centre against Talwandi Sabo Power Limited, observed, “…The penalty as coming out from Regulation 11.3.13 of the SG Code is a civil liability since the obligation of the SGS to generate power in accordance with its declared capability flows from the contract, a civil obligation. A default therein as coming out from a failure to demonstrate declared capability attracts penalty, without anything more, making its imposition imperative, as per the statutory scheme. The said measure of imposition of penalty does not call for any finding of mens rea or a finding of illegal profiteering as would be required when there is an allegation of gaming”.
Senior Advocate M.G. Ramachandran appeared for the appellant and Senior Advocate Sajan Poovayya, Advocate Vishrov Mukerjee appeared for the respondents.
The dispute arose from findings of misdeclaration of declared capacity recorded by the Punjab State Load Despatch Centre for multiple dates in January 2017. Penalties exceeding ₹162 crore had initially been imposed against Talwandi Sabo Power Limited for allegedly failing to demonstrate its declared generation capacity after receiving notices from the SLDC.
While the SERC upheld the penalties for four dates in January 2017, the Appellate Tribunal for Electricity (APTEL) later reversed the decision and deleted the findings of misdeclaration.
Before the Supreme Court, the appellants argued that the Grid Code imposed an obligation upon generating stations to faithfully declare and maintain their generation capability, especially because fixed charges and incentives were linked to declared capacity.
It was contended that demonstration of declared capability was essential for maintaining grid discipline and ensuring readiness to ramp up supply in real time.
The respondents argued that misdeclaration could arise only where there was deliberate intent to profiteer or where the generating station lacked sufficient coal stock or suffered shutdown due to faulty machinery. They further contended that the notices issued by the SLDC did not specify the exact timeframe within which the declared capacity had to be demonstrated.
Rejecting these submissions, the Court held that the APTEL had incorrectly conflated the concept of “gaming” with failure to demonstrate declared capability. The Court noted that Regulation 11.3.13 creates a stand-alone strict liability framework and does not require proof of intention or unlawful enrichment.
“The demonstration as required by Regulation 11.3.13 is a standalone provision, the penalty for which is ingrained therein. There is no reason to intermingle the concepts of gaming and demonstration of declared capability, even though both can be found literally to be misdeclarations leading to two different consequences, the former, requiring mens rea and the latter inviting strict liability…”, the Bench observed.
The Bench observed that the SLDC’s authority to seek demonstration of declared capability was intrinsically linked to ensuring “better system operation” under the Grid Code. It held that generating stations must demonstrate the declared capacity within four-time blocks from the issuance of notice, treating the block in which the notice is received as the first-time block.
The Court further clarified that deviation, gaming, and failure to demonstrate declared capability are separate regulatory concepts. While deviation is governed by the Deviation Settlement Mechanism Regulations and gaming requires proof of intentional manipulation for commercial gain, failure to demonstrate declared capability constitutes a distinct civil breach attracting mandatory penalties.
Examining the facts, the Court found that Talwandi Sabo Power Limited repeatedly failed to achieve the declared generation capacity within the required time blocks on the dates in question. In one instance, after receiving a demonstration notice, the company revised its declared capacity downward instead of demonstrating the previously declared capability.
The Bench also rejected reliance placed on prior regulatory decisions concerning minor practical deviations and fuel substitution cases, holding that those precedents were factually distinguishable and unrelated to the present issue of real-time demonstration of declared capacity.
Accordingly, the Court set aside the APTEL judgment and restored the SERC order affirming the penalties imposed against the generating station. The Court further directed refund of any surcharge amounts paid by the Punjab State Power Corporation Limited due to the interim reversal of penalties by APTEL, together with applicable interest.
Cause Title: Punjab State Power Corporation Limited v. Talwandi Sabo Power Limited & Ors. (Neutral Citation: 2026 INSC 515)
Appearances:
Appellant: Shubham Arya, Poorva Saigal, Pramod Dayal, AOR, Rishabh Saxena,. Kaavya Madaan, Shirin Gupta, M.G. Ramachandran, Sr. Adv., Shubham Arya, Nikunj Dayal, AOR, Reeha Singh, Pallavi Saigal, Shree Dwivedi, Harsha Parakh, Advocates.
Respondent: Vishrov Mukerjee, Sajan Poovayya, Sr. Adv., Pratyush Singh, Garima Adlakha, Nishtha Kumar, AOR, Palash Maheshwari, Sindura N. Swamy,. Raksha Agarwal,. Sunieta Ojha, AOR Ms. Gargi Kumar, Advocates.