1. Dispute over tariff re-determination in Power Purchase Agreements under the Renewable Energy Certificate mechanism following regulatory amendments under the Electricity Act, 2003. (Para 3 , 5 , 6 , 11 , 13 )
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2023 Supreme(SC) 362
SUPREME COURT OF INDIA
SANJAY KISHAN KAUL, S. RAVINDRA BHAT, M.M. SUNDRESH, JJ.
Gujarat Urja Vikas Nigam Limited and Others – Appellants
Versus
Renew Wind Energy (Rajkot) Private Limited and Others – Respondents
Civil Appeal Nos. 3480-3481 of 2020
Decided On : 13-04-2023
Important Points
The Court held that regulatory amendments are prospective unless expressly retrospective and cannot unilaterally alter existing Power Purchase Agreements. Additionally, claims of coercion or duress in contracts must be substantiated by specific pleadings and evidence, rather than general allegations.
Subject
Energy Law - Regulatory Compliance
Act Referred
CENTRAL ELECTRICITY REGULATORY COMMISSION PROCEDURE, TERMS AND CONDITIONS FOR GRANT OF TRADING LICENSE AND OTHER RELATED MATTERS AMENDMENT REGULATIONS: S.5(1)(c), S.9(2)
ELECTRICITY ACT: S.61, S.86(1)(b), S.178, S.125, S.62, S.64
INCOME TAX ACT: S.32(1)(i)
INCOME TAX RULES: R.5(1)(a)
MAHARASHTRA ELECTRICITY REGULATORY COMMISSION MULTI YEAR TARIFF REGULATIONS: S.21
ELECTRICITY ACT: S.61, S.86(1)(b), S.178, S.125, S.62, S.64
INCOME TAX ACT: S.32(1)(i)
INCOME TAX RULES: R.5(1)(a)
MAHARASHTRA ELECTRICITY REGULATORY COMMISSION MULTI YEAR TARIFF REGULATIONS: S.21
Headnote
(A) Electricity Act, 2003 - Section 125 - Section 86 - Tariff determination - The appellant challenges APTEL's orders affirming the State Commission's easing of tariff terms under the REC mechanism due to coercion claims. Findings indicate the trial parties entered the PPA willingly within the regulatory framework, thus highlighting issues of jurisdiction and enforceability of PPAs without prior state approval. (Paras 1-2, 4, 37-72)
(B) Power Purchase Agreements - Equitable bargaining - Concluded by creating mutual consent, PPAs require regulatory compliance and cannot be altered without substantiated claims of coercion or duress. Findings highlighting lack of evidence on coercion criticized as inadequate. Resultantly, the initial decisions of APTEL deemed unsustainable. (Paras 66-72)
Facts of the case:
Legal challenges were brought forth by Gujarat Urja against APTEL regarding tariff determinations in relation to PPAs concerning renewable energy procurement. The claim of coercion leading to contractual duress was not sufficiently supported by evidence, raising questions on the enforceability of tariffs set within the framework of the Electricity Act.
Findings of Court:
Court clarified that substantive law dictates prospective applicability, affirming the sanctity of parties’ contracts governing their mutual agreements. Additionally, the findings on coercion and bargain inequity were deemed unsubstantiated and thus disregarded.
Issues: The core issues involved jurisdiction over tariff determination and whether existing PPAs could be modified under new regulatory terms.
Ratio Decidendi: The court emphasized that existing contracts are binding unless substantial evidence of coercion or regulatory conflict exists. This reflects a strong adherence to contractual agreements’ sanctity and the necessity of proof when challenging fairness.
Result: Appeals allowed.
(B) Power Purchase Agreements - Equitable bargaining - Concluded by creating mutual consent, PPAs require regulatory compliance and cannot be altered without substantiated claims of coercion or duress. Findings highlighting lack of evidence on coercion criticized as inadequate. Resultantly, the initial decisions of APTEL deemed unsustainable. (Paras 66-72)
Facts of the case:
Legal challenges were brought forth by Gujarat Urja against APTEL regarding tariff determinations in relation to PPAs concerning renewable energy procurement. The claim of coercion leading to contractual duress was not sufficiently supported by evidence, raising questions on the enforceability of tariffs set within the framework of the Electricity Act.
Findings of Court:
Court clarified that substantive law dictates prospective applicability, affirming the sanctity of parties’ contracts governing their mutual agreements. Additionally, the findings on coercion and bargain inequity were deemed unsubstantiated and thus disregarded.
Issues: The core issues involved jurisdiction over tariff determination and whether existing PPAs could be modified under new regulatory terms.
Ratio Decidendi: The court emphasized that existing contracts are binding unless substantial evidence of coercion or regulatory conflict exists. This reflects a strong adherence to contractual agreements’ sanctity and the necessity of proof when challenging fairness.
Result: Appeals allowed.
Legal Category Hierarchy
- energy law
- contract law
- administrative law
Advocates:
Advocate Appeared:
For the Appellants : Hemantika Wahi, Jesal Wahi, Srishti Khindaria.
For the Respondents: Nishtha Kumar, Vishal Gupta, Nikilesh Ramachandran, Nitin Saluja.
Advocate Appeared:
For the Appellants : Hemantika Wahi, Jesal Wahi, Srishti Khindaria.
For the Respondents: Nishtha Kumar, Vishal Gupta, Nikilesh Ramachandran, Nitin Saluja.
Table of Contents
2. Whether mutually agreed fixed tariffs in PPAs must be revised to dynamic pooled costs following regulatory amendments and whether contracts were executed under coercion. (Para 14 , 16 , 17 , 18 , 19 , 21 , 22 , 23 , 24 , 25 , 26 , 27 , 28 , 29 , 30 , 31 , 32 , 33 , 34 , 35 , 36 )
3. Regulatory amendments are prospective; PPAs for renewable energy did not require prior approval; and findings of coercion without specific pleadings or evidence are untenable. (Para 45 , 46 , 47 , 48 , 49 , 50 , 51 , 52 , 53 , 54 , 55 , 56 , 57 , 58 , 59 , 60 , 61 , 62 , 63 , 64 , 65 , 66 , 67 , 68 , 69 , 70 , 71 )
4. Substantive regulatory amendments operate prospectively; mutually agreed contractual terms are binding unless expressly overridden; and coercion must be specifically pleaded and proved with particulars. (Para 64 , 65 , 66 , 69 , 70 )
5. Appeals allowed and costs awarded; orders of the State Commission and Appellate Tribunal for Electricity set aside. (Para 72 )
6. Do amendments to electricity regulations apply retrospectively to existing Power Purchase Agreements?
No, substantive laws and regulations are presumed to operate prospectively unless retrospective operation is clearly expressed in the language of the statute or regulation. Amendments that modify accrued rights or impose new duties are treated as prospective unless legislative intent clearly states otherwise. (Para 64 , 65 , 66 )
7. Can a regulatory commission unilaterally revise a mutually agreed tariff in a Power Purchase Agreement?
Once agreements are signed and enforceable, they cannot be frustrated or altered based on subsequent changes in regulations or a party's second thoughts, unless the later amendment expressly overrides existing contracts. (Para 51 , 63 , 66 )
8. What is the legal standard for establishing coercion or duress to invalidate a commercial contract?
A bald plea of coercion is insufficient. The party pleading it must set forth full particulars and material facts with a high degree of precision, substantiated by cogent evidence, affidavits, or documentary proof. (Para 68 , 69 , 70 , 71 )
9. Is prior approval from the State Commission mandatory for all Power Purchase Agreements involving renewable energy?
Not necessarily. If the specific regulations for renewable energy procurement do not mandate prior approval, agreements entered into by parties' free choice are enforceable, especially when they align with model PPAs or Central Commission terms. (Para 45 , 46 , 47 , 48 )
JUDGMENT :
S. RAVINDRA BHAT, J.
1. The current civil appeals1 [Civil Appeals Nos. 3480 and 3481 of 2020] under Section 125 of the ELECTRICITY ACT , 2003, (hereafter, “the Act”) challenge orders of the Appellate Tribunal for Electricity (hereafter “APTEL”) dated 06.12.2018 (“first impugned order”)2 [in Appeal No. 209/2015] and order dated 24.07.2020 (“second impugned order”)3 [in Review Petition No. 03/2019]. The APTEL had, by those orders, rejected the appeals preferred by the present appellant, and the review petition, as well. Resultantly, the order of the Gujarat Electricity Regulatory Commission (hereafter “the State Commission”) dated 01.07.20154 [in petition No. 1363/2013] was affirmed.
2. The first appellant-Gujarat Urja Vikas Nigam Limited (hereafter “Gujarat Urja”) had approached this court previously challenging the order of APTEL, which was disposed of by this court5 [Civil Appeal No. 1253/2019 by order dated 15.02.2019] granting liberty to it, to seek review/rectification. Gujarat Urja then preferred a review petition, which was rejected by APTEL, by the second impugned order. When this appeal was taken up for hearing, on 14.10.2020, this court had issued notice and stayed the impugned order of APTEL.
Background
3. Gujarat Urja procures power in bulk on behalf of distribution licensees in the state of Gujarat; it is an authorized licensee within the meaning of the term under the Act. The second, third, fourth and fifth appellants are distribution licensees in the State of Gujarat. The first respondent, Renew Wind Energy (Rajkot) Pvt. Ltd. (hereafter “RWE”) is a wind generator which had set up 25.2 MW Wind Turbine Generators at District Rajkot, Gujarat under the Renewable Energy Certification scheme notified by the Central Electricity Regulatory Commission (hereafter, “Central Commission”). The second respondent is the Wind Independent Power Producers Association (hereafter “Association”). The Respondent No 3, Gujarat Electricity Regulatory Commission (hereinafter “the State Commission”) is the regulatory commission under the Act, for the State of Gujarat. The fourth respondent, Wish Wind Infrastructure LLP (“Wish Wind” hereafter) is a wind generator.
4. By Section 86 of the Act6 [The relevant extract of Section 86 is as follows: 86. Functions of State Commission: (1) The State Commission shall discharge the following functions, namely: (a) determine the tariff for generation, supply, transmission and wheeling of electricity, wholesale, bulk or retail, as the case may be, within the State. (b) regulate electricity purchase and procurement process of distribution licensees including the price at which electricity shall be procured from the generating companies or licensees or from other sources through agreements for purchase of power for distribution and supply within the State; (c) facilitate intra-State transmission and wheeling of electricity....(e) promote co-generation and generation of electricity from renewable sources of energy by providing suitable measures for connectivity with the grid and sale of electricity to any person, and also specify, for purchase of electricity from such sources, a percentage of the total consumption of electricity in the area of a distribution licensee....] State Commissions discharge several functions - which include the determination of tariff “for generation, supply, transmission and wheeling of electricity, wholesale, bulk or retail, as the case may be, within the State.” The tariff determination process should accord with Sections 62 and 64 of the Act. Section 62 , requires “the Appropriate Commission” (in this case, the State Commission) to determine tariffs in accordance with the provisions of the Act for-among other purposes, retail supply of electricity. The State Commissions are also empowered to frame regulations, under Section 181 of the Act. That power includes the formulation of the “terms and conditions for determination of tariff Under Section 61 .” 7 [Clause 181(2)(z
