Gujarat-owned PSU Discom doesn't need permission to pay compensatory tariff to Adani Power: Supreme Court [Read Order]

The Division Bench of the Apex Court comprising of Justices J. Chelameswar and Abhay Manohar Sapre while hearing a Civil Appeal preferred by M/s. Adani Power Ltd. held that Gujarat-owned Discom does not require its permission to pay "compensatory tariff" to Adani Power Ltd and such a decision would be subject to final verdict on the plea of the private power generating firm.

Adani Power is a power generating firm and Discom is a company owned by the State of Gujarat carrying on business of purchasing power in bulk from power generating companies such as Adani Power and supplying to various distributing companies in the State of Gujarat.

Adani Power and the Gujarat owned Discom entered into a Power Purchase Agreement (PPA). Under the said agreement, the Adani Power is obliged to sell 1000 megawatt of power from the their power project. For various reasons the Adani Group terminated the PPA since January 2010. After some correspondence, the Discom filed a petition before the Gujarat Electricity Regulatory Commission seeking adjudication of the dispute arising out of termination of the PPA. Aggrieved by the said order, the Adani Group carried the matter in appeal before the Appellate Tribunal for Electricity unsuccessfully. Adani Power Ltd has filed appeal in the apex court against the order of the Appellate Tribunal for Electricity which had upheld the view of subordinate panel, the Gujarat Electricity Regulatory Commission (GERC).

The GERC, on August 31, 2010, had set aside the decision of Adani Power to terminate its PPA with Discom and had asked the private firm to keep supplying electricity as per the terms of PPA.

The private company, has sought an interim relief that the Discom be directed to pay it as per "the CERC norms for tariff on cost plus basis; and also make the payment from the date of the supply of power under the PPA of the differential amount between the PPA tariff and the tariff as per CERC norms for tariff on cost plus basis on the such terms and condition as this court deems fit as just and proper".

On hearing the rival submissions the Apex Court observed:

“A PPA is a contract between the parties and the terms of any contract are nothing but the agreed terms of the contracting parties. It is also a settled principle of the law of contracts that parties to a contract can alter the terms of the contract subsequent to the formation of the contract by mutual consent.”

However, the Court held that the rights of the State and its agencies and instrumentalities in the realm of contracts are circumscribed by the considerations of public interest. It was added that apart from such general principle, the rights and obligations of the parties to the PPA in question were also subject to certain statutory prescriptions.

Disposing of the interim plea, the bench headed by Justice J. Chelameswar said, "In so far as the question of permitting the 2nd respondent (PSU) to pay the compensatory tariff as indicated in its counter, we are of the opinion that it requires no permission from this Court.

"It is up to the 2nd respondent to take a decision in accordance with law to the best of its understanding. We may make it clear that if the 2nd respondent chooses to make such payment, the same shall be subject to the result of the appeal," said the Court.

Read the order here.