Supreme Court: Regulatory Or Adjudicatory Fora Can’t Rewrite Contractual Framework Or Superimpose Obligations Alien To Agreement

The Supreme Court reiterated that regulatory or adjudicatory fora cannot, under the guise of equity or fairness, rewrite the contractual framework or superimpose obligations alien to the agreement.

A Civil Appeal was preferred against the Judgment of the Appellate Tribunal for Electricity (APTEL), New Delhi by which it affirmed the Order of the Karnataka Electricity Regulatory Commission (KERC).

The two-Judge Bench comprising Justice Sanjay Kumar and Justice Satish Chandra Sharma observed, “Reliance was also placed before us on the decision of this Court in Venkataraman Krishnamurthy & Anr. v. Lodha Crown Buildmart Pvt. Ltd., (2024), wherein it was observed that the explicit terms of a contract are always the final word with regard to the intention of the parties. We find the principle enunciated therein to be apposite to the case at hand. This Court has, in a consistent line of judgements, reiterated that regulatory or adjudicatory fora cannot, under the guise of equity or fairness, rewrite the contractual framework or superimpose obligations alien to the agreement.”

The Bench said that the directions of the State Commission, affirmed by the APTEL, requiring restoration of the performance security, extension of contractual timelines, and renegotiation of tariff, transgress the limits of that jurisdiction.

Senior Advocate Dhruv Mehta represented the Appellant while AOR Snehasish Mukherjee represented the Respondents.

Brief Facts

The Appellant, Chamundeshwari Electricity Supply Company Limited (CESC) was a distribution licensee wholly owned by the State of Karnataka. The Respondent No. 2 i.e., Karnataka Power Transmission Corporation Limited (KPTCL) was the State transmission utility and a statutory corporation. Both entities were State instrumentalities engaged in discharging public functions under the Electricity Act, 2003. The Respondent No. 1 M/s Saisudhir Energy (Chitradurga) Pvt. Ltd. (Developer) was a private generating company selected pursuant to a competitive bidding process for the establishment of a 10 MW solar power project in Chitradurga District. A request for proposal was issued by the Karnataka Renewable Energy Development Limited (KREDL) inviting bids for selection of Solar Power Developers (SPDs) to establish grid-connected solar power plants in the State.

The bidding process was conducted under the aegis of the State’s solar policy to promote renewable energy capacity. Pursuantly, the Developer was selected for development of a 10 MW solar photovoltaic power project. Thereafter, the Appellant-CESC and Developer executed a PPA (Power Purchase Agreement) and then a supplementary PPA was also executed. The Developer sought Appellant’s assistance for securing approvals and requested extension of the COD (Commercial Operation Date). Appellant stated that extension could be considered only on condition of a reduced tariff and challenging this, the Developer approached the KERC. The State Commission held that the delay in completion of the evacuation system constituted a Force Majeure event under the PPA. Being aggrieved, the Appellant approached the APTEL, which dismissed its Appeal. Hence, the Appellant was before the Apex Court.

Reasoning

The Supreme Court in view of the above facts, noted, “The finding of Force Majeure by the State Commission cannot be sustained for the reason that Article 14.5 of the PPA stipulates that the affected party “shall” issue notice within seven days of knowledge of the event. This requirement is not merely directory; it is a condition precedent for invoking the clause. Even if the delay in completion of the evacuation system was beyond the Respondent No. 1/Developer’s control, the appropriate provision for relief was Article 5.7, not Article 14 of the PPA.”

The Court added that significantly, Article 14.3.1 of the PPA details the events and circumstances which constitute Force Majeure and delay in the readiness of the evacuation system, even if attributable to Respondent No. 2/KPTCL, does not constitute a Force Majeure event, as defined.

“The omission to pursue contractual relief under the correct clause is fatal; it cannot be remedied by recourse to a provision inapplicable on its terms. … As regards the submission that the PPA is in the nature of a contingent contract under the Contract Act, the contention requires careful scrutiny. The completion of the evacuation system by Respondent No. 2/KPTCL was indeed an uncertain event outside the Respondent No. 1/Developer’s control, and in a practical sense, supply of power was dependent upon it. Yet, the PPA does not treat such completion as a condition precedent in law to the Respondent No. 1/Developer’s obligations. It instead provides specific contractual mechanism(s) - Article 5.7 for delays attributable to the Appellant and Article 14 for events of Force Majeure”, it further said.

The Court was of the view that unless relief is sought and secured under those provisions, the time-bound obligations under the PPA remain enforceable and the Appellant’s remedies for default intact.

“The PPA, being the product of a competitive bidding process and having received regulatory approval, must be construed and enforced strictly in accordance with its express stipulations. To permit otherwise would be to allow the State Commission or the APTEL to override the parties own allocation of risk under the contract”, it remarked.

Conclusion

The Court also observed that both State instrumentalities, are parties to a commercial contract concluded through competitive bidding and their relationship is governed not by overarching notions of equity but by the terms of the PPA.

“The jurisdiction of the regulatory bodies is to ensure compliance with law and to adjudicate disputes within the four corners of the contract. It does not extend to recasting the contractual framework by directing restitution of amount lawfully realised under the PPA, or by mandating alterations to tariff and timelines in a manner inconsistent with the agreement”, it added.

The Court, therefore, concluded that the Appellant’s invocation and encashment of the performance security was in full conformity with the contractual framework under the PPA and the non-fulfilment of the Developer’s obligations within the stipulated time, non-seeking of extension under Article 5.7 or valid Force Majeure claim under Article 14, necessarily attracted Article 4.4 of the PPA.

Accordingly, the Apex Court allowed the Appeal and set aside the impugned Judgment.

Cause Title- Chamundeshwari Electricity Supply Company Ltd. (CESC) v. Saisudhir Energy (Chitradurga) Pvt. Ltd. & Anr. (Neutral Citation: 2025 INSC 1034)

Appearance:

Appellant: Senior Advocate Dhruv Mehta, AOR Garima Jain, Advocates Sumana Naganad, Tushar Kanti Mohindroo, Arnav Khanna, Kartikeya Sharma, Mohit Singh, Nidhi Gupta, and Vismaya Simha.

Respondents: AOR Snehasish Mukherjee

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