JUDGMENT

1. Heard Mr. K.V. Viswanathan, learned senior Counsel for the Appellant and Mr. G. Umapathy for Respondent No. 1. Appellant is a State Electricity Board. Respondent No. 1 had entered into a Power Purchase Agreement (PPA) with the Karnataka Power Transmission Corporation Ltd. (KPTCL) for supply of power by an agreement dated 04.04.2002. Paragraphs 5.1 and 5.2 of the said Agreement are relevant for our purpose, which are as under:

"5.1 Monthly Energy Charges: Corporation shall for the Delivered Energy pay, for the first 10 years from the date of signing of Agreement to the Company every month during the period commencing from the Commercial Operation Date on the basis of the base price applicable for the year 1994-95 at the rate of Rs. 2.25 (Rupees Two and twenty five paise) per kilowatt hour (the tariff) for energy delivered to the Corporation at the Meeting Point with an escalation to the Corporation at the Metering Point with an escalation at a rate of 5% per annum over the tariff applicable for the previous year as per guidelines issued by the Ministry of Non-Conventional Energy Sources of the Gol.

5.2 From the 11th year onwards, from the date of signing of Agreement, Corporation shall pay to the Company for the energy delivered at the Meeting Point at a rate agreed by mutual negotiations. In case the Parties do not arrive at a mutual agreement on the tariff, the Company shall be permitted to sell power to third parties and enter into a Wheeling and Banking Agreement with Corporation to sell power through the rates applicable from time to time in addition to banking charges at the rates applicable from time to time as approved by the Commission based on the month and balance of the energy banked."

2. Subsequently, by a Supplemental Agreement dated 29.10.2005 entered into between the Appellant and Respondent No. 1, Paragraphs 5.1 and 5.2 of the Agreement dated 04.04.2002 came to be modified. Under Paragraph 5.1 of the Supplemental Agreement, the rate of tariff was altered providing for a slightly higher tariff for purchase of power from Respondent No. 1.

3. In the year 2004, the KERC (Power Procurement from Renewable Sources by Distribution Licensee) Regulations, 2004 (for short "the 2004 Regulations") dated 27.09.2004 came to be notified by the Karnataka Electricity Regulatory Commission, Respondent No. 2 herein, in the Karnataka Gazette on 21.10.2004. Under Regulation 5.1, it was stipulated that the Commission should determine the tariff for purchase of electricity from renewable sources by a buyer. The proviso, however, provided that the PPAs approved by the Commission including the PPAs deemed to have been approved Under Section 27(2) of the Karnataka Electricity Reforms Act, 1999, prior to the notification of those Regulations shall continue to apply for such period as mentioned in those PPAs.

4. Subsequently, in the year 2011, fresh Regulations, viz., KERC (Power Procurement from Renewable Sources by Distribution Licensee and Renewable Energy Certificate Framework) Regulations, 2011 (for short "the 2011 Regulations") came to be issued and notified. Under Regulation 9 of the 2011 Regulations, it was provided that the Commission may determine at any time the tariff for purchase of electricity from renewable sources of energy by Distribution Licensees either suo motu or on an application either by generator or by Distribution Licensee. The proviso to Regulation 9, however, was identical to the proviso to Regulation 5.1 of the 2004 Regulations. It is needless to state that the above Regulations came to be framed by virtue of the power vested in the State Commission Under Section181 read with Section 86(1)(e) of the Electricity Act, 2003.

5. Pursuant to the original Agreement dated 04.04.2002 and supported by the Supplemental Agreement dated 29.10.2005, the tariff which was originally fixed Under Paragraph 5.1 in the year 2002 and subsequently modified in the Supplemental Agreement was implemented and was holding the field