Supreme Court Holds Uttar Haryana Bijli Vitran Nigam Liable To Pay Compound Interest To Adani Power Ltd

The Supreme Court has held that Uttar Haryana Bijli Vitran Nigam Ltd needs to pay compounded interest to Adani Power limited, on account of "change in law".

The bench comprising Chief Justice NV Ramana, Justice Krishna Murari and Justice Hima Kohli, held that if the banks had charged Adani Power interest on monthly rest basis for giving loans to purchase the installations required on grounds on Change in Law, any restitution will be incomplete, if it is not fully compensated for the interest paid by Adani to the banks on compounding basis. 

Facts of the Case

Adani Power, the respondent, is a power generating company that has set up a power plant in Mundra, Gujarat. Uttar Haryana Bijli Vitran Nigam Ltd., the appellant, is the distribution licensee that supplies electricity to the consumers in the State of Haryana.

In 2008, the appellant entered into two Power Purchase Agreements (PPAs) with the respondent. In 2010, on account of Environment Clearance given by the Ministry of Environment and Forests, a Change in Law event took place and the respondent had to incur additional costs on installing Flue Gas Desulfurization (FGD) unit. In 2014, the respondent filed a petition before the Central Commission for adjudication of compensation on account of certain Change in Law events including installation of the FGD and carrying costs. The Central Commission allowed compensation only for certain Change in Law events but disallowed the claim for carrying cost raised by Adani Power. Aggrieved by the order passed by the Central Commission, both the appellant and the respondent, preferred appeals before the Appellate Tribunal.

By the impugned judgment dated 12th August, 2021, the Appellate Tribunal not only held that Adani Power was entitled for carrying costs, from the date of Change in Law occurrence, but also interest on carrying cost as well. Aggrieved by the said finding, the appellant approached the Supreme Court.

At the outset, the Supreme Court noted that the scope of the appeal was restricted to the decision of the Appellate Tribunal of granting carrying cost interest on compounding basis in favour of Adani. This means that while the appellants were not disputing grant of interest to Adani Power by way of carrying cost, their grievance was that the Appellate Tribunal had not just permitted carrying cost on simple interest basis, but had imposed interest on carrying cost or what is commonly known as interest on interest (compound interest) on carrying cost. 

Arguments Raised

Sr. Adv. M.G. Ramachandran, appearing for appellants submitted that only simple interest was payable by the appellants to Adani as there was no wrongdoing/ default/ unjust enrichment that could be attributable to the appellants for the delay caused in determination of the amount by the Central Commission or the Appellate Tribunal. He further submitted that there was no stipulation in the PPAs for payment of compound interest for the period from the date when Change in Law event had occurred, till the date of adjudication of the claim by the Central Commission. Further, it was stated that there was no statutory provision in the Electricity Act, 2003 or the relevant rules framed under it, as applicable at the relevant time, which permitted payment of compound interest for carrying cost.

The appellant underscored that while interest on interest was prescribed under the Interest Act, 1978 but the exceptions carved out under Section 4 of the said enactment did not cover the facts of the instant case as the appellants had duly paid the amount to the respondent upon determination by the Central Commission and within the time stipulated for clearing the Supplementary Bill that was raised on it. It was canvassed that the respondent, Adani Power became entitled to raise a Supplementary Bill on the appellants only when the Central Commission determined the amount payable as an impact of Change in Law. Contending that the Supplementary Bill could include carrying cost only if there was a restitution provision under Article 13 of the PPAs, the appellant stated that there was no restitution provision and thus, the Supplementary Bill could not even include the carrying cost. Thus, it was submitted that only only Late Payment Surcharge (LPS) was payable by the appellants to the respondent at the rate mentioned in the PPAs, but not beyond that.

Per contra, Sr. Adv. Mukul Rohtagi, appearing for respondent, Adani Power, on merits, submitted that admittedly, the Change in Law event had occurred when Adani Power had to install the FGD in the year 2014. The claim raised by Adani Power for installation of the FGD was finally decided by the Central Commission only in the year 2018, when carrying cost compensation on account of Change in Law event was allowed in its favour. However, Rohtagi stated, the carrying cost was approved only from the date of the judgment and not for the period between 2014 and 2018, whereas Adani Power was entitled for carrying cost right from the year 2014, when it was required to infuse huge amounts towards installation of the FGD. Reference was made to the articles of the PPAs that provided for an in-built restitutionary principle and hold that compensation had to be paid from the date of occurrence of the Change in Law events. He stated that compound interest was payable for delayed payments, and since the appellants had agreed to pay interest on compounding basis for delayed payments, the very same principle would apply for carrying cost as well, since both, carrying cost and late payment surcharge were to be factored in towards time value of money.

Adani also submitted that having borrowed money from banks to install the FGD and having paid compound interest on the borrowed sum, it was only seeking restitution for the interest incurred by it and paid to the banks at the same rate and that this was not a case of unjust enrichment.

Court's Decision

The court opined that the restitutionary principles encapsulated in the PPA would take effect for computing the impact of Change in Law. It stated that Adani Power had started claiming Change in Law event compensation in respect of installation of FGD along with carrying cost, right from the year 2012 and had approached several fora to get the claim settled. It finally succeeded in getting compensation towards FGD only in 2018, but the carrying cost claim was denied. when finally the relief relating to carrying cost was granted to Adani, it could not be urged by the appellants that interest on carrying cost should be calculated on simple interest basis instead of compound interest basis. The court opined that–

"Grant of compound interest on carrying cost and that too from the date of the occurrence of the Change in Law event is based on sound logic. The idea behind granting interest on carrying cost is not far to see, it is aimed at restituting a party that is adversely affected by a Change in Law event and restore it to its original economic position as if such a Change in Law event had not taken place"

The court while further taking in account the finances incurred by Adani to purchase and install the FGD stated that–

"For this, it had to arrange finances by borrowing from banks. The interest rate framework followed by Scheduled Commercial banks and regulated by the Reserve Bank of India mandates that interest shall be charged on all advances at monthly rests. In this view of the matter, Adani Power is justified in stating that if the banks have charged it interest on monthly rest basis for giving loans to purchase the FGD, any restitution will be incomplete, if it is not fully compensated for the interest paid by it to the banks on compounding basis."

The court held that the principle that governs compensating a party for the time value for money, is the very same principle that would be invoked and applied for grant of interest on carrying cost on account of a Change in Law event.

Accordingly, the impugned judgment passed by the Appellate Tribunal was upheld and the present appeal was dismissed as meritless.

CASE TITLE: UTTAR HARYANA BIJLI VITRAN NIGAM LTD. AND ANOTHER v. ADANI POWER (MUNDRA) LIMITED AND ANOTHER | CIVIL APPEAL NO. 7129 OF 2021

Citation : 2022 LiveLaw (SC) 711

Headnotes

Power Purchase Agreement - Supreme Court holds that Uttar Haryana Bijli Vitran Nigam Ltd needs to pay compounded interest to Adani Power limited, on account of "change in law".

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