2025 Supreme(Online)(APTEL) 1

APPELLATE TRIBUNAL FOR ELECTRICITY
M/s Korba Power Limited VERSUS Haryana Electricity Regulatory Commission & Ors
APPEAL NO.431 2022 (PDF)

Unpaid interest on a principal amount, when the principal has been paid, partakes the character of principal and attracts further interest until the entire interest amount is paid, based on the principles of restitution and time value of money.

Headnote:(A) Doctrines - Doctrine of merger - Also referred to as the principle that 'actus curiae neminem gravabit' (an act of the court shall prejudice no man) - When a superior court, in its appellate or revisional jurisdiction, pronounces a judgment on a matter, the original decision of the lower court merges into the decision of the superior court and the lower court order ceases to have independent existence - The appellate court's order merges with the original order passed by the lower court, making the corrective terms effective from the date of original lower court's order. (Paras 26-29)

(B) Interest - Period for which interest is payable - The principle of compensation for the time value of money and restitution - When a superior court on appeal awards interest not granted by the lower court and remands the case for calculation, the interest generally must run from the date of original judgment of the lower court - A person deprived of the use of his money to which he is lawfully entitled has a legitimate claim for interest upon such amount for the period during which he was deprived of its use - Payment of interest is a necessary corollary to the return on money retained by a person unjustly or unlawfully - The unpaid interest after payment of principal amount, partakes the character of principal upon which interest would be levied till the date it is paid - The prohibition under the Interest Act, 1978 against compound interest or interest on interest applies when both principal as well as interest remains unpaid, and does not apply in a situation where the principal is paid but the interest remains to be paid for a substantial period of time. (Paras 34-36)

(C) Interest - Rate of interest - In the absence of any effective date in the remand order, the lower court while performing the calculation as per the remand order, ought to apply the interest from the date of its own original order - The rate of interest is to be determined in accordance with the applicable tariff regulations of the state commission. (Paras 28, 44-49)

Facts of the case:
The appellant ran a 300MW coal based thermal power plant and had entered into a PPA for sale of power. Due to failure of the power purchaser to fulfill conditions precedent, the PPA was terminated. Subsequently, the state commission determined the tariff for the power supplied, and the appellant sought recovery of the differential tariff along with interest. The commission initially awarded the differential tariff but declined to grant interest. This was corrected by the appellate tribunal in two separate judgments, which held the appellant entitled to interest on the differential tariff and on differential O&M expenses, and remanded the matters to the commission for calculation. The principal amount was paid by the respondent in three installments in the year 2016, but the payment of interest was delayed for a considerable period. In a remand proceeding, the commission held that once the principal amount is paid, the interest outstanding thereon does not attract any further interest. The appellant assailed this order, claiming entitlement to interest on the unpaid interest amount from the date it became due until the date of actual payment.

Findings of Court:
The appellate tribunal set aside the impugned order of the commission and held the appellant entitled to interest on the differential tariff from the date it became due (12.07.2016) and on the differential O&M expenses from the date it became due (31.10.2018) till the date of payment of the entire interest amount. Any amount of interest which had remained unpaid as on the date of payment of principal amount shall also carry interest at the rate allowed by the commission till the date the entire interest amount stands paid. The court affirmed the rate of interest as granted by the commission.

Issues: The main issues were whether the appellant is entitled to interest on the unpaid interest amount for the period after payment of the principal amount, and whether the rate of interest allowed by the commission was correct.

Ratio Decidendi: The court ruled that the unpaid interest as on the date of payment of principal amount partakes the character of principal and attracts interest until it is paid, based on the principle of time value of money and restitution. The court applied the doctrine of merger to hold that the interest runs from the date of the original order of the commission. The court distinguished the cases cited by the respondent, holding that the prohibition against compound interest does not apply where the principal has been paid but the interest remains unpaid for a substantial period. Result : Appeal partly allowed.