DISCOMS To Pay ‘Change In Law’ Compensation For All Additional Charges Levied By State Instrumentalities To Power Generating Companies: Supreme Court

The Supreme Court has lamented the practice of Distribution Companies (DISCOMS) and power generating companies pursuing endless litigation challenging the concurrent findings arrived at by the Central Electricity Regulatory Commission (CERC) and the Appellate Tribunal for Electricity (APTEL).

The bench of Justices B.R. Gavai and Vikram Nath was hearing cross appeals challenging the judgment and order of APTEL, filed by various DISCOMS, including the Dadra and Nagar Haveli DISCOM (DNH-DISCOM), the Haryana, Rajasthan, and Bihar DISCOMS, and by various power generating companies who were awarded the Power Purchase Agreements (PPAs) by the said DISCOMS.

The power generating companies, including GMR Warora Energy Ltd. (GWEL), had filed a petition before the CERC seeking relief for certain ‘Change in Law’ events which had occurred with regard to the PPAs. In an appeal filed before the APTEL, the Tribunal had allowed certain claims of the companies while disallowing others.

The top court observed that it has specifically been observed in Uttar Haryana Bijli Vitran Nigam Limited (UNHVNL) & Anr. vs Adani Power Ltd & Ors., (2019) 5 SCC 325, that the ‘Change in Law’ events will have to accrue from the date on which Rules, Orders, Notifications are issued by the instrumentalities of the State. Even in spite of this finding, the DISCOMS are pursuing litigations after litigations. It further observed that in some of the matters, the parties had filed the appeals only for the sake of filing the same.

The bench remarked, “We find that, when the PPA itself provides a mechanism for payment of compensation on the ground of ‘Change in Law’, unwarranted litigation, which wastes the time of the Court as well as adds to the ultimate cost of electricity consumed by the end consumer, ought to be avoided,” adding that ultimately, the huge cost of litigation on the part of DISCOMS as well as the power generators adds to the cost of electricity that is supplied to the end consumers.

The court thus appealed the Union of India through the Ministry of Power (MoP), to evolve a mechanism so as to ensure timely payment by DISCOMS to the power generating companies under the PPAs, which would avoid huge carrying cost to be passed over to the end consumers. “The Union of India, through MoP, may also evolve a mechanism to avoid unnecessary and unwarranted litigation, the cost of which is also passed on to the ultimate consumer,” said the court.

Referring to the cross appeals, the Apex Court framed the issue as to whether various taxes/charges imposed by various State Governments after the cut-off date specified in the PPAs, would fall under ‘Change in Law’ events or not.

The court further framed certain issues, including whether the levy of Forest Tax and the MoEF Notification on coal quality, could be considered as ‘Change in Law’ events.

Perusing the PPAs, the court referred to the definition of the term “Law”, as contained in the PPAs.

“Perusal of the definition of the term “Law” itself would clearly show that the term “Law” would mean all laws including Electricity Laws in force in India and any statute, ordinance, regulation, Notification or code, rule, or any interpretation of any of them by an Indian Governmental Instrumentality and having force of law,” the court said.

The Court added: “It would further reveal that the term “Law” shall also include all applicable rules, regulations, orders, Notifications by an Indian Governmental Instrumentality and shall also include all rules, regulations, decisions and orders of the CERC and the MERC.”

The bench thus concluded that all such additional charges which are payable on account of orders, directions, Notifications, Regulations, etc., issued by the instrumentalities of the State, after the cut-off date specified in the PPAs, will have to be considered to be ‘Change in Law’ events.

Thus, it held that GWIL would be entitled to compensation on the restitutionary principle on such changes occurring after the cut-off date.

Perusing the MOEF notification on coal quality, it observed that the MoEF, vide Notification dated 2nd January 2014 has mandated power projects to use beneficiated coal with ash content lower than 34%. It took note that prior to the cut-off date, the same was not a requirement. While holding that the MoEF is an instrumentality of the State, the court remarked, “It is thus clear that the said Notifications dated 11^th July 2012 and 2nd January 2014 would amount to “Change in Law’. As such, no fault can be found with the finding of the learned APTEL that the same would amount to ‘Change in Law’.”

Referring to the issue of Forest Tax, the court took note that there was no Forest Tax applicable on the coal mined and transported from the South Eastern Coalfields Limited (SECL) mines located in the Forest area. “For the first time, vide Notification of the Chhattisgarh State Government, Department of Forest, under the provisions of Chhattisgarh Transit (Forest Produce Rule) 2001, a fee at the rate of Rs.7 per ton was levied. Undisputedly, the said Notification is issued by the Forest Department of the Government of Chhattisgarh, which is an instrumentality of the State,” the court said. The court thus upheld the finding of the APTEL that the same amounted to a ‘Change in Law’.

On the issue of increase in ‘Busy Season Surcharge, Development Surcharge on transportation of coal, and Port Congestion Surcharge’ by the Indian Railways, the Court reckoned that the said Surcharges were increased from time to time vide Circulars/Notifications issued by the Ministry of Railways, through the Railway Board.

While observing that the Railway Board has been held to be a State within the meaning of Article 12 of the Constitution of India, the bench concluded that the revision of charges to be paid on the said surcharges from time to time by the Railway Board, would come within the ambit of ‘Change in Law’. The court thus upheld the order of the APTEL.

While dealing with the DISCOMS’ contention that the APTEL had erred in allowing ‘Carrying Cost’/ interest on compensation, the bench referred to its decision in Uttar Haryana Bijli Vitran Nigam Limited (UNHVNL) & Anr. vs Adani Power Ltd & Ors., (2019) 5 SCC 325. Referring to the judgment, the bench observed, “It has been held that an in-built restitutionary principle compensates the party affected by such ‘Change in Law’ and the affected party must be restored through monthly tariff payment to the same economic position as if such ‘Change in Law’ had not occurred.”

The bench observed that the argument that there is no provision in the PPAs for payment of compound interest from the date when the ‘Change in Law’ event had occurred, has been specifically rejected by the Apex Court.

The court thus dismissed the appeal.

Case Title: GMR Warora Energy Limited vs Central Electricity Regulatory Commission (CERC) & Ors.

Citation : 2023 LiveLaw (SC) 329

Counsels: Vishrov Mukherjee, GWEL; Mr. Samir Malik, MSEDCL and Mr. M.G. Ramachandran, Senior Counsel, DNH-DISCOM; Balbir Singh, Additional Solicitor General; Dr. A. M. Singhvi; Mr. V. Giri; Mr. C.A. Sundaram; Mr. Maninder Singh; Mr. Sajan Poovayya and Mr. Niranjan Reddy, Senior Counsel; Ms. Poorva Saigal; Ms. Anushree Bardhan and Ms. Poonam Sengupta.

Electricity Act, 2003- Supreme Court has lamented the practice of Distribution Companies (DISCOMS) and power generating companies pursuing endless litigation challenging the concurrent findings arrived at by the Central Electricity Regulatory Commission (CERC) and the Appellate Tribunal for Electricity (APTEL).

The Court has asked the Union of India through the Ministry of Power (MoP), to evolve a mechanism so as to ensure timely payment by DISCOMS to the power generating companies under the Power Purchase Agreements (PPAs).

The bench concluded that all additional charges which are payable on account of orders, directions, Notifications, Regulations, etc., issued by the instrumentalities of the State, after the cut-off date specified in the PPAs, will have to be considered to be ‘Change in Law’ events for payment of compensation under the PPAs.

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