1. Power Purchase Agreement — Dispute over payment of fixed costs after a Tariff Order interdicted power supply in consumer interest — Appeal under Electricity Act. (Para 1 )
Back
Next 
2020 Supreme(SC) 782
SUPREME COURT OF INDIA
ROHINTON FALI NARIMAN, V. RAMASUBRAMANIAN, JJ.
Haryana Power Purchase Centre – Appellant
Versus
Magnum Power Generation Limited & Anr – Respondent
Civil Appeal Nos. 4407-4408 of 2011 with Civil Appeal Nos. 7446-7447 of 2012
Decided On : 21-01-2020
Important Points
The Court held that fixed costs mandated by a Tariff Order must be paid to a generator even if no energy is supplied, particularly when the Tariff Order itself prohibits such supply in the consumer's interest, ensuring the generator is not unfairly penalized for regulatory restrictions.
Subject
Contract Law - Power Purchase Agreement
Act Referred
ELECTRICITY ACT: S.86(1)(f)
Headnote
Power plant - Power Purchase Agreement - Terminated - A Power Purchase Agreement (PPA) dated was entered into between appellant and respondent for sale by appellant of energy produced by it after setting up of a power plant - This Agreement shall become effective upon execution and delivery by Parties here to and unless earlier terminated pursuant to Article 5 shall have a term from date here of until fifteen (15) years from Synchronization Date of last Unit (180) days prior to end of full (15) Year term described above HSEB shall have right for an extension of this Agreement for an additional period as required on same terms except Tariff (as defined in Schedule 4) which shall be re-negotiated - Such extension shall begin upon end of full fifteen (15) Year term – Held, Court have also noted that for years in question it is clear that fixed cost that has been demanded by the appellant from respondent has in fact been collected from the consumer but not paid over to appellant, which would result in an unjust windfall for respondent - Appellant has lost in both original forum as well as appellate forum, and which has taken over 15 years to decide, and given fact that respondent is a Government-Company, Court deem it appropriate that this amount be paid with simple interest @ 3% per annum - In case amounts are not paid within three months from today, interest component shall become 6% p.a. for payment made beyond 3 months - Appeals are disposed of accordingly.
Legal Category Hierarchy
Advocates:
Advocate Appeared:
Mr. Jayant Bhushan, Sr. Adv. Mr. Ranjit Kumar, Sr. Adv. Mr. Mohit Paul, AOR Mr. Prashant Mehta, Adv. Ms. Neha Tanwar, Adv. Ms. Sunaina Phul, Adv. Mr. Kelan Paul, Adv. Mr. Tushar Bhushan, Adv. Mr. Amartya Bhushan, Adv. Mr. Gurinder Singh Gill, Sr. Adv. Mr. Shekhar Raj Sharma, Adv. Mr. P.P. Nayak, Adv. Mr. Ajay Pal, AOR Mr. S. S. Shroff, AOR
Advocate Appeared:
Mr. Jayant Bhushan, Sr. Adv. Mr. Ranjit Kumar, Sr. Adv. Mr. Mohit Paul, AOR Mr. Prashant Mehta, Adv. Ms. Neha Tanwar, Adv. Ms. Sunaina Phul, Adv. Mr. Kelan Paul, Adv. Mr. Tushar Bhushan, Adv. Mr. Amartya Bhushan, Adv. Mr. Gurinder Singh Gill, Sr. Adv. Mr. Shekhar Raj Sharma, Adv. Mr. P.P. Nayak, Adv. Mr. Ajay Pal, AOR Mr. S. S. Shroff, AOR
Table of Contents
2. Whether payment of fixed costs is contingent upon achieving a minimum Plant Load Factor or is guaranteed regardless of supply as per a binding Tariff Order. (Para 2 , 3 )
3. A binding Tariff Order interdicting power supply for consumer interest does not exempt the purchaser from paying fixed costs recognized in that same order. (Para 4 )
4. Fixed costs recognized in a binding Tariff Order must be paid even if power supply is interdicted by the same authority in the public interest. (Para 4 )
5. Impugned order set aside; respondent directed to pay demanded fixed costs with simple interest. (Para 5 )
6. Does a regulatory order interdicting power supply for consumer interest waive the obligation to pay fixed costs?
No. If a binding Tariff Order recognizes fixed costs to be paid to the generator irrespective of whether energy is purchased, that obligation remains even if the same order interdicted supply in the consumer's interest. (Para 4 )
7. Can a party retain funds collected from consumers for fixed costs without paying the generator?
No. The court held that collecting fixed costs from consumers but failing to pay them to the generator results in an unjust windfall for the respondent. (Para 4 )
JUDGMENT :
R.F. NARIMAN, J.
Civil Appeal Nos. 7446-7447 OF 2012:
1. The present appeals arise from an Appellate Tribunal for Electricity order dated 23.03.2012, which, in turn, upheld the HERC order dated 23.03.2010. The brief facts necessary for decision of these appeals are as follows:-
(i) A Power Purchase Agreement (PPA) dated 12.08.1998 was entered into between the appellant and the respondent for sale by the appellant of energy produced by it after setting up of a power plant. The salient terms of this PPA are as follows:-
“5.1. Terms of Agreement: This Agreement shall become effective upon execution and delivery by the Parties here to and unless earlier terminated pursuant to Article 5 shall have a term from the date here of until fifteen (15) years from the Synchronization Date of last Unit. (180) days prior to the end of the full (15) Year term described above the HSEB shall have the right for an extension of this Agreement for an additional period as required on the same terms except the Tariff (as defined in Schedule 4) which shall be re-negotiated. Such extension shall begin upon the end of the full fifteen (15) Year term.
In the event the term is not extended, the company shall have the option to sell power to third party.
In the alternative HSEB shall have the first right to refusal to buy the Project at the book value.
5.2. Company Default
The following events unless occurring as a result of a breach by HSEB of its obligations under this agreement or an event of force majeure, shall constitute an event of default by the Company:-
(a) The Company is adjudicated bankrupt or dissolved or a receiver is appointed for its assets or proceedings for the company’s liquidation (except for the purpose of amalgamation or restructuring on terms not detrimental to HSEB) are continuing more than 120 days after they were commenced.
(b) Any license or consent required by the company to perform its obligation under this Agreement is revoked or is not renewed because of the company’s default.
(c) The Company fails to commence construction of the Power station to a material extent within (6) months after the date of financial closing or abandons the Power Station due to the company’s default or repudiates this Agreement, contrary to the terms of this Agreement.
(d) The Company declares neither generating unit available, or no generating unit is capable of generating any electricity due to company’s default for a continuous period of six (6) months.
(e) The Company commits a serious breach of this Agreement and which results in the Company being unable to carry out its obligations and where the breach is capable of being remedied it has not been remedied within 60 days after HSEB notified the company in writing of the nature of the breach and required it to be remedied.
5.3 HSEB DEFAULT
The following events unless occurring as a result of a breach by the company of its obligations under the agreement or an event of Force Majeure, shall constitute an event of default by the HSEB.
(a) HSEB is adjudicated bankrupt or dissolved or a receiver is appointed of the whole or any part of its assets or proceedings for its liquidation (other than for the purpose of amalgamation or restructuring on terms not detrimental to the company) which are continuing more than 120 days after they were commenced.
(b) If an amount due equal to one months billing at 75% PLF, payable by HSEB to the company shall remain unpaid more than 60 days after the payment became due.
(c) Any license or consent required by the HSEB or any of its entitled successors pursuant to clause 18.10 to purchase electricity in bulk from the company or to transmit that electricity for the purpose of supplying electricity to consumers or any licensee in the State of Haryana is revoked or expires for any reason whatsoever.
(d) HSEB commits a serious breach of this Agreement which results in the company being unable to carry out its obligation and where the breach is capable of being remedied it has not be
