Supreme Court Upholds Regulatory Authority’s Decision on Power Purchase Agreement: CLP India vs. Gujarat Urja (2020)

LEGAL ISSUE: Applicability of amended tariff notifications to existing Power Purchase Agreements (PPAs).
CASE TYPE: Electricity Law, Contract Law, Regulatory Law.
Case Name: CLP India Pvt. Ltd. vs. Gujarat Urja Vikas Nigam Ltd. & Anr.
[Judgment Date]: May 6, 2020

Date of the Judgment: May 6, 2020
Citation: Not Available in the source.
Judges: Arun Mishra, J., Vineet Saran, J., S. Ravindra Bhat, J. (Majority Opinion by S. Ravindra Bhat, J.)

Can a power generating company claim incentives based on an older notification when a subsequent amendment alters the terms? This question was at the heart of a dispute between CLP India and Gujarat Urja. The Supreme Court of India, in this case, examined the enforceability of a power purchase agreement (PPA) in light of subsequent statutory notifications regarding tariff and incentives. The court had to decide if an amendment to a tariff notification would apply to an existing PPA and whether a generating company could claim incentives that were no longer applicable due to the amendment.

Case Background

In 1994, the Gujarat Electricity Board (now Gujarat Urja) and CLP India (then Gujarat Torrent Energy Corporation Ltd.) entered into a power purchase agreement (PPA). Under this agreement, CLP was to supply 635 MW of electricity to Gujarat Urja for 20 years. The tariff for this electricity was to be determined according to the norms set by the Central Government.

Prior to the PPA, the Central Government issued a notification on March 30, 1992, specifying the terms for determining electricity tariffs, including incentives for units using naphtha. This notification was amended on January 17, 1994, capping the incentive for generation above 68.49% for fixed cost recovery. Subsequently, on November 6, 1995, another amendment was issued, removing the deemed generation incentive for naphtha-based plants.

Gujarat Urja sought to enforce the 1995 notification, arguing that CLP was not entitled to the deemed generation incentive. CLP disagreed, stating that the 1995 notification was not applicable to them. Despite this disagreement, Gujarat Urja continued to pay the incentive until 2000.

In 2003, a supplementary agreement was made to reduce tariffs, with Gujarat Urja stating that all outstanding issues were resolved. However, in 2005, a committee was formed to review excess payouts, leading Gujarat Urja to file a petition with the Gujarat Electricity Regulatory Commission (GERC) to recover the deemed generation incentive paid to CLP from 1997-98 to 2005-06.

Timeline

Course of Proceedings

The Gujarat Electricity Regulatory Commission (GERC) ruled that the 1995 notification applied to CLP, thus making the deemed generation incentive not payable. However, GERC permitted recovery of the incentive only for the three years prior to the filing of the petition, holding claims before that as time-barred.

CLP appealed to the Appellate Tribunal for Electricity (APTEL), challenging the rejection of its claim for interest on the deemed loan component. APTEL upheld GERC’s decision, stating that the supplementary agreement did not obligate Gujarat Urja to refund interest on the deemed loan for any period before July 1, 2003.

Legal Framework

The case primarily revolves around Section 43A of the Electricity (Supply) Act, 1948, which allows a generating company to enter into contracts for the sale of electricity. It also stipulates that the tariff for such sales shall be determined by the Central Government through notifications.

Section 43A(2) of the Electricity (Supply) Act, 1948 states:

“The tariff for the sale of electricity by a Generating Company to the Board shall be determined in accordance with the norms regarding operation and the Plant Load Factor as may be laid down by the Authority and in accordance with the rates of depreciation and reasonable return and such other factors as may be determined, from time to time, by the Central Government, by notification in the Official Gazette…”

The Central Government issued notifications on March 30, 1992, and November 6, 1995, under this section. The 1992 notification specified the terms for determining tariffs, including incentives for naphtha-based units. The 1995 notification amended the 1992 notification by adding Note 2, which stated:

“Note:2 -For Naptha based thermal plants, the extent of backing down, as ordered by Regional Electricity Boards, beyond plant Load Factor of 6000 kwh/kw/year, shall not be reckoned as generation achieved for incentive purpose.”

Arguments

Gujarat Urja’s Arguments:

• Gujarat Urja argued that the 1995 notification was applicable to CLP, and therefore, the deemed generation incentive should not have been paid.

• They contended that the amounts paid to CLP were in excess and should be refunded in their entirety from the time the incentive was no longer applicable.

• They argued that the GERC and APTEL erred in limiting the refund to a period of three years prior to the filing of the petition.

• Gujarat Urja relied on the fact that the Central Electricity Authority and the Central Government had taken decisions on this aspect, and thus, CLP was aware that the incentive was not payable.

CLP India’s Arguments:

• CLP argued that its plant was gas-based, not naphtha-based, and that the 1995 notification applied only to 100% naphtha-based stations.

• They contended that the 1995 notification was prospective and did not apply to the pre-existing PPA signed in 1994.

• CLP argued that Clause 6.5 of the PPA, regarding change in law, covered the amendment to the 1992 notification, and therefore, the financial difficulties resulting from the 1995 notification should be compensated in their favor.

• CLP claimed that the term “Naphtha based station” refers to the physical characteristic of the plant and not to the nature of fuel to be used.

• CLP also argued that the supplementary agreement of 2003 did not settle the issue of interest on deemed loan component, and that they were entitled to interest on the deemed loan from the date it was considered a loan.

Submissions Table

Issues Framed by the Supreme Court

The Supreme Court considered the following issues:

1. Whether the amounts paid to CLP from 1998 to 2005 were in excess of what was actually payable by Gujarat Urja?
2. Whether the GERC and APTEL were correct in limiting the refund to a period of three years prior to Gujarat Urja’s application?
3. Whether CLP was entitled to interest on the deemed equity component for a period prior to 01.07.2003?

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Judgment

The Supreme Court dismissed both appeals, upholding the decisions of the GERC and APTEL.

Treatment of Submissions

Treatment of Authorities

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the binding nature of statutory notifications and the principle that contracts cannot override statutory provisions. The court emphasized the following points:

• Statutory Notifications: The court stressed that the notifications issued by the Central Government under Section 43A of the Electricity (Supply) Act, 1948, are statutory and binding on all parties, including those with existing PPAs.
• Amendment to Tariff: The court noted that the 1995 notification amended the earlier notification, and therefore, the incentive was no longer payable.
• Contractual Obligations: The court held that while parties can agree to terms in a PPA, these terms are subject to statutory provisions and cannot contradict them.
• Limitation Period: The court upheld the limitation period, stating that repeated communications do not extend the period for claiming refunds.
• Supplementary Agreement: The court noted that the supplementary agreement specified the period for which interest on the deemed loan was payable, and no prior period was agreed upon.

Sentiment Analysis Table

Fact:Law Ratio Table

Logical Reasoning

The court considered alternative interpretations but rejected them, emphasizing the binding nature of the statutory notifications and the terms of the supplementary agreement. The court’s decision was based on the principle that statutory provisions override contractual terms.

The court’s decision was unanimous, with all three judges concurring.

The court quoted from the judgment:

• “Any PPA between a generating company and the purchaser of electricity is subject to such statutory notifications; parties by agreement cannot override statutory provisions, or such notifications, as far as they relate to matters of tariff.”
• “The arguments by the CLP, in the opinion of the Court, that the parties were bound only by the terms of the agreement and that the amendment notification being prospective, could not have altered the terms of the tariff, especially the incentive payable, are insubstantial and have no force.”
• “In the present case, the clear agreement between the parties was that interest on the sum of ₹ 53.90 crores was payable for the specified period 01.07.2003 to 31.12.2009.Therefore, CLP’s claim that any amount was payable, for any period prior to 01.07.2003, was not tenable.”

Key Takeaways

• Statutory notifications regarding tariffs are binding on all parties, irrespective of existing agreements.
• Amendments to tariff notifications apply to existing PPAs.
• Parties cannot claim incentives that are no longer applicable due to amendments in statutory notifications.
• Limitation periods for claiming refunds must be strictly adhered to, and repeated communications do not extend the limitation period.
• Agreements must be interpreted in light of statutory provisions, and express provisions in agreements exclude similar matters not explicitly mentioned.