CERC Can't Go Beyond Express Terms Of Contract; APTEL Can't Discover New "Change In Law" Which Parties Never Contemplated : Supreme Court

The Supreme Court has ruled that in a case where the matter is governed by the express terms of the contract, the Central Electricity Regulatory Commission cannot, even donning the garb of a regulatory body, go beyond the express terms of the contract.

The bench of Justices K.M. Joseph and B.V. Nagarathna noted that a regulation made under Section 178 of the Electricity Act, 2003 has the effect of interfering and overriding the existing contractual relationship between the regulated entities. However, the bench remarked that while it may be open for a regulation to extricate a party from its contractual obligations, the Commission cannot in the course of its adjudicatory power, use the nomenclature regulation to usurp this power to disregard the terms of the contract.

The court further held that the Appellate Tribunal for Electricity cannot discover a new ‘change in law’ which the parties have not contemplated as change in law under the contract, and the Tribunal cannot rewrite the contract and create a new bargain between the parties.

The top court was dealing with an appeal filed against the decision of the Tribunal who had set aside the order of the Commission, where the latter had ruled that the issues raised by the power generator, Sasan Power Ltd, a subsidiary of Reliance Power Limited, under the Power Purchase Agreement (PPA), did not constitute a ‘change in law’ for availing compensation under the PPA. While setting aside the order of the Tribunal where it had remanded the matter to the Commission for re-examination, the court upheld the finding that Sasan Power had failed to demonstrate that there was a change in law as contemplated under the Agreement between the parties.

Dismissing the contentions advanced by Sasan Power, the court remarked that where the parties have entered into a contract with express provisions, the Tribunal would not have the power to disregard the express provisions of the contract on the ground that, with the passage of time and change in circumstances, it is found that the contract cannot be worked except at a loss for the contractor.

Sasan Power, is a Special Purpose Vehicle, which was formed to set up an Ultra Mega Power Project, to be operated by Reliance Power Limited, which was declared as the successful bidder and who, consequently, acquired 100 per cent shareholding of Sasan Power.

Reliance entered into a Power Purchase Agreement (PPA) with the appellants, including the Haryana Power Purchase Centre, in 2007.The power generated by Reliance was to be supplied through procurers/ distribution licensees, including the Haryana Power Purchase Centre, under the Electricity Act. The procurers were to supply the power so procured finally to the consumers.

After the PPA was entered into, a petition was filed before the Central Electricity Regulatory Commission by Sasan Power under Section 79 of the Act, read with the statutory framework governing procurement of power and the relevant articles contained in the PPA, for compensation due to change in law ‘during the construction period’. Sasan Power pleaded that due to certain changes in law that had occurred during the ‘Construction Period of the Project’, the Capital Cost of the Project had increase substantially.

The petition was dismissed by the Commission, who adopted the rates in accordance with the PPA, holding that Sasan Power had failed to establish any change in law.

Against this, Sasan Power filed an appeal before the Appellate Tribunal for Electricity, who remanded the matter back to the Commission for re-examining the issues.

In an appeal filed before the Supreme Court against the decision of the Tribunal, the top court reckoned that it was the case of Sasan Power that there was insufficient availability of water at the project site. Sasan Power had relied on the second report of the WAPCOS, who is a public sector body of the Central Government and who was tasked with the responsibility of ascertaining the availability of water for the project. Sasan Power pleaded that because of this, it was compelled to take water from a distant point of the reservoir which led to a colossal increase in the expenditure towards laying of the pipelines. Thus, the same constituted a change in law.

Noting that it was dealing with an appeal under Section 125, which is based on the existence of a substantial question of law, the bench-while dealing with the merits of the case-reckoned that Sasan Power had pleaded before the Commission that the increase in the cost was directly attributable to the error in the 1^st WAPCOS report provided to the bidders at the pre-bid stage, and thus Sasan Power was required to be compensated for the same.

Further, as per Sasan Power, the initial consent which the appellant was required to secure under the PPA, consisted of performing the task of making the land available for the power plant and for the pipeline. Since there was a change in the same in view of what transpired pursuant to the second report of the WAPCOS, Sasan Power was entitled to relief. Accordingly, the appellants were obliged to provide the water linkage, it averred.

Rejecting the contention of Sasan Power, the court remarked that the procurers had fulfilled their obligation as contemplated in the Request for Proposal (RFP) (a bid document), since the Central Water Commission had given its approval for sourcing the water needed from the water body in question. Further, it was not the case of Sasan Power that it had been forced to take water from any other water source.

The bench further noted that the relevant clause of the PPA contemplated performance of “making available the land for the power plant and for the water intake pipeline”, which was to be performed within a period of eight months, however, the same was performed belatedly by the procurers.

Referring to the PPA, the bench, however, concluded that the delay in the performance of the said task- which has been characterised on its performance within the time as a ‘deemed initial consent’- would not lead to a ‘change in law’ under the PPA. It added that such failure, at best or at worst, could have only empowered Sasan Power to rescind the contract.

“This is not a case where the first respondent has made use of the land for the purpose of laying the pipeline through the corridor as contemplated and found that drawing water from the water intake system as contemplated would have resulted in water not being available in sufficient quantity through the length of the year. There is no such case,” said the court.

It added: “The case of the first respondent, on the other hand, is that the PPA having been signed on 07.08.2007, in the second week of December of the very same year-2007, in order to confirm the availability of water through water intake system as contemplated in the first WAPCOS report, the second report was commissioned ironically through the very same consultant. There is no case, whatsoever, that having made attempts to draw water in terms of the first WAPCOS report and having found that such an effort failed, they were compelled to seek recourse to a second study albeit by the same body.”

It further ruled, “No reasons are forthcoming as to what inspired the first respondent to commission the second study. Secondly, this is not a case where the procurers brought about any change in law in the study on their own or they persuaded or compelled the first respondent to change the corridor for the route for laying of the pipeline. The first respondent did not even involve the procurers in the second study. There is no intimation given that the first respondent was commissioning a new study. There is no basis forthcoming as to what prompted the first respondent to commission a fresh study. What is stated is only that it wished to confirm the availability of water in terms of the first water intake study.”

The bench concluded: “Thus, the PPA contemplates that if the seller is affected by change in law and wishes to claim change in law, it has to notify the procurers of the change in law as soon as is reasonably practicable after becoming aware of the same. It may be true that on the basis of the request made by the first respondent apparently based on the second WAPCOS report that the first respondent has taken steps for acquiring the land needed for laying the pipeline. It may be true that the said pipeline had to cross a greater distance. It is not as if it was on the basis that the procurers rendered themselves liable in law or held themselves liable in law to make good the escalation in cost. There is no such material made available indicating that the procurers have held out that they will be liable.”

The Apex Court further expressed surprise as to how the Tribunal could, on the basis of the second report, find that the first WAPCOS report was grossly erroneous, without undertaking a comparative study of the two reports. It concluded that Sasan Power cannot claim compensation on the basis that it has incurred expenditure acting on the first WAPCOS report.

The court thus allowed the appeal and set aside the order of the Tribunal where it had remanded the matter to the Commission.

Case Title: Haryana Power Purchase Centre vs Sasan Power Ltd & Ors.

Citation : 2023 LiveLaw (SC) 409

Counsel for the parties: Mr. G. Umapathy, Sr. Adv. Mr. Rohit K. Singh, AOR Mr. P. Chidambaram, Sr. Adv. Mr. M.G. Ramachandran, Sr. Adv. Mr. Anand K. Ganesan, Adv. Ms. Poorva Saigal, Adv. Mr. Nikunj Dayal, AOR Mr. Shubham Arya, Adv. Mr. Amal Nair, Adv. Ms. Kritika Khanna, Adv. Ms. Pallavi Saigal, Adv. Ms. Reeha Singh, Adv. Ms. Shikha Sood, Adv. Ms. Anumeha Smiti, Adv. Mr. M.G. Ramachandran, Sr. Adv. Mr. K. V. Mohan, AOR Ms. Poorva Saigal, Adv. Mr. Shubham Arya, Adv. Mr. K.V. Balakrishnan, Adv. Ms. Pallavi Saigal, Adv. Ms. Shikha Sood, Adv. Mr. Ravi Nair, Adv. Ms. Reeha Singh, Adv. Ms. Anumeha Smiti, Adv. Mr. Rahul Kumar Sharma, Adv. Mr. Rana Mukherjee, Sr. Adv. Mr. Rakesh K. Sharma, AOR Mr. Rajiv Srivastava, Adv. Mr. Nishant Sharma, Adv. Ms. Gargi Srivastava, Adv. Ms. Adviteeya, Adv. Ms. Aparna Bhat, AOR Mr. Sajan Povayya, Sr. Adv. Mr. Amit Kapur, Adv. Mr. Pukhrambam Ramesh Kumar, AOR Mr. Rahul Kinra, Adv. Mr. Aditya Ajay, Adv. Mr. Karun Shrama, Adv. Mr. Girdhar Gopal Khattar, Adv. Ms. Aliva Ahmed, Adv. Ms. Raksha Agrawal, Adv. Ms. Divyya Kaul, Adv. Mr. Hasan Murtaza, AOR Mr. K. V. Mohan, AOR. Mr. Dhruv Mehta, Sr. Adv. Mr. Mansoor Ali Shoket, Adv. Mr. Nitin Kala, Adv. Mr. Kunal Singh, Adv.

Electricity Act, 2003:

The Supreme Court has ruled that in a case where the matter is governed by express terms of the contract, the Central Electricity Regulatory Commission cannot, even donning the garb of a regulatory body, go beyond the express terms of the contract.

The bench noted that a regulation made under Section 178 of the Electricity Act, 2003 has the effect of interfering and overriding the existing contractual relationship between the regulated entities. However, the bench remarked that while it may be open for a regulation to extricate a party from its contractual obligations, the Commission cannot in the course of its adjudicatory power, use the nomenclature regulation to usurp this power to disregard the terms of the contract.

The court further held that the Appellate Tribunal for Electricity cannot discover a new ‘change in law’ which the parties have not contemplated as change in law, and the Tribunal cannot rewrite the contract and create a new bargain between the parties.

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