Price At Which Power Is Procured By Distribution Licensee From Generating Company Not A Matter Of Consensus: Supreme Court

The Supreme Court held that under the Electricity Act, 2003, the price at which power is to be procured by a distribution licensee from a generating company is not a matter of consensus and private agreement between the parties as it is to be fixed statutorily by the appropriate Commission.

The Court held thus in Civil Appeals filed by Gujarat Urja Vikas Nigam Limited (GUVNL), assailing the common Judgment of the Appellate Tribunal for Electricity (APTEL), New Delhi.

The two-Judge Bench comprising Justice Sanjay Kumar and Justice Satish Chandra Sharma observed, “Further, it is manifest and demonstrable from the statutory scheme obtaining under the Act of 2003 that the price at which power is to be procured by a distribution licensee from a generating company is not a matter of consensus and private agreement between the parties as it is to be fixed statutorily by the Appropriate Commission. GUVNL cannot, therefore, fix its own price or bind a generating company to such price, contrary to the dictum of the GERC.”

The Bench said that an assessee is required to choose the option of either availing accelerated depreciation or normal depreciation only at the time it files its return for the assessment year relatable to the previous year in which it started generation of power, if the same was after April 1, 1997.

Senior Advocates C.A. Sundaram and M.G. Ramachandran represented the Appellant while Senior Advocate Shyam Divan represented the Respondents.

Brief Facts

The APTEL had confirmed the Orders of the Gujarat Electricity Regulatory Commission (GERC) in Petitions filed by the Respondent companies. In 2016, the Supreme Court had requested the GERC to defer its proceedings till the matter was finally decided and disposed of. This Order was passed in view of the fact that pursuant to the APTEL’s common Judgment under Appeal, the GERC began hearings for determination of tariff on the Petitions filed by each of the four Respondent companies.

Thereafter, in 2023, the Supreme Court permitted the GERC to proceed with the tariff determination hearings subject to the condition that no final Order should be passed without the leave of the Court. The hearings before the GERC were concluded but the final Orders were not pronounced. The short issue for consideration was whether the Respondent companies were entitled to approach the GERC for determination of the tariff for procurement of power by GUVNL from their wind energy projects. The GERC answered this issue in their favour and the same stood confirmed by the APTEL. Hence, the Appeals were preferred before the Apex Court.

Reasoning

The Supreme Court in view of the above facts, noted, “Though GUVNL was not the only distribution licensee in the State of Gujarat at that point of time, we cannot lose sight of the fact that, being a State-instrumentality, it was and is a major distributor of electricity across the State of Gujarat.”

The Court added that the GERC clearly stipulated that the levelized price of ₹3.56 per kWh was to apply only to those wind energy projects that availed the benefit of accelerated depreciation under the Income Tax Act, 1961 (ITA) and the Income Tax Rules, 1962.

“Pertinently, the scheme of the Act of 1961 and the Rules of 1962 makes it clear that an assessee is required to choose the option of either availing accelerated depreciation or normal depreciation only at the time it files its return for the assessment year relatable to the previous year in which it started generation of power, if the same was after 01.04.1997. This liberty and discretion given to an assessee could not be truncated or cut short by GUVNL by fixing a binding price unilaterally in the PPA executed long before the assessee had to statutorily choose its option, i.e., at the time it filed its return of income for the assessment year relatable to the previous year in which it actually started generation of power”, it further said.

The Court remarked that the conundrum in which a power producer is placed in this scenario is patent and unless it generates power and sells it to a distribution licensee under a PPA, the power producer would not file its return of income in relation thereto.

“The situation would, however, be different if the power producer chooses its option at the time of entering into the PPA with the distribution licensee itself and gives a commitment to such distribution licensee that it would only avail accelerated depreciation when the time comes and would, therefore, be bound by the tariff fixed for power producers availing such benefit”, it added.

The Court also observed that merely because the companies signed the PPAs with a fixed tariff which was applicable only to those projects that availed accelerated depreciation, GUVNL cannot take advantage of its dominant position and its PPAs so as to bind them to the price mentioned therein for the entire life of their projects.

“As pointed out earlier, GUVNL is bound to promote and give effect to the Government’s policy of encouraging generation of power from renewable energy sources. When the Government promulgated a policy in that regard, offering various incentives to wind energy projects, GUVNL cannot act contrary thereto by fixing a tariff for purchase of power from such wind energy projects, which, on the face of it, is contrary to the mandate of Order No.1 of 2010 dated 30.01.2010 issued by the GERC”, it held.

Conclusion

Moreover, the Court was of the view that GUVNL cannot be guided only by its own commercial interests, like a private business entity and its conduct, as a State-instrumentality, must be of the standard of a model citizen.

“However, patently unfair treatment was sought to be meted out by GUVNL to the respondent companies by binding them to a rate that was wholly inapplicable to them. Such conduct, akin to a Shylock, does not reflect positively upon GUVNL”, it remarked.

The Court said that as GUVNL failed to obtain commitments from the Respondent companies that they would only avail accelerated depreciation at the time they had to choose that option, GUVNL has no indefeasible right to bind them to a tariff which was applicable only to such wind energy projects that availed accelerated depreciation.

“The GERC had made it quite clear that the tariff of 3.56 per ₹ kWh would apply only to those wind energy projects that availed accelerated depreciation. Therefore, that tariff has no application to a wind energy project that did not avail accelerated depreciation. GUVNL cannot apply that wholly inapplicable tariff to the respondent companies which, admittedly, did not avail accelerated depreciation. The orders passed by the GERC and the APTEL holding to this effect, therefore, do not brook any interference”, it concluded.

Accordingly, the Apex Court dismissed the Appeals.

Cause Title- Gujarat Urja Vikas Nigam Limited v. Green Infra Corporate Wind Private Limited and Others Etc. (Neutral Citation: 2025 INSC 922)

Appearance:

Appellant: Senior Advocates C.A. Sundaram, M.G. Ramachandran, AOR Hemantika Wahi, Advocates Jesal Wahi, Ranjitha Ramachandran, and Srishti Khindaria.

Respondents: Senior Advocate Shyam Divan, AORs Vishal Gupta, Nitin Saluja, Divyakant Lahoti, Advocates Anupam Chaudhary, Shri Venkatesh, Kanika Chugh, Siddharth Nigotia, Harsh Vardhan Jha, Akshaya Babu, Praveena Bisht, Vindhya Mehra, Kartik Lahoti, Kumar Vinayakam Gupta, Adith Menon, Samridhi Bhatt, Shreya Gokel, Siddharth Tripathi, and Akanksha Soni.

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