Supreme Court | Sanctity of Power Purchase Agreements Reaffirmed | Absence of Force Majeure Notice Bars Relief; Regulators Cannot Rewrite Contracts Under Equity
Kiran Raj
The Supreme Court of India Division Bench of Justice Sanjay Kumar and Justice Satish Chandra Sharma allowed the appeal filed by Chamundeshwari Electricity Supply Company Ltd. The Court held that the invocation and encashment of the performance bank guarantee were validly exercised under the Power Purchase Agreement executed with the project developer. It set aside the orders of the Karnataka Electricity Regulatory Commission and the Appellate Tribunal for Electricity, both of which had earlier directed restoration of the guarantee amount, extension of contractual timelines, and renegotiation of tariff. The Court concluded that relief under the PPA could only be sought through specific contractual provisions and that regulatory fora lacked jurisdiction to rewrite the terms of a commercial arrangement concluded through competitive bidding
The litigation arose from a competitive bidding process initiated by the Karnataka Renewable Energy Development Limited to promote solar energy projects under the State’s renewable policy framework. Saisudhir Energy (Chitradurga) Pvt. Ltd., a special purpose vehicle promoted by Saisudhir Energy Limited, was selected for development of a 10 MW solar photovoltaic project in Thallaku Village, Challakere Taluk, Chitradurga District.
On 30 August 2012, the Developer and the Appellant, Chamundeshwari Electricity Supply Company Ltd. (CESC), entered into a Power Purchase Agreement (PPA) approved by the Karnataka Electricity Regulatory Commission (KERC). The tariff was fixed at Rs. 8.49 per kWh. The PPA required the Developer to achieve commercial operation within 12 months from the effective date and to fulfill certain Conditions Precedent within 240 days.
The obligations of the Developer included securing land, financial closure, statutory approvals, and interconnection arrangements. To secure performance, a bank guarantee of Rs. 24.9 crores was furnished. On 28 May 2013, a supplementary PPA was executed aligning the timelines with KERC’s tariff order.
The project site was finalised at Thallaku Village. By an order of the Deputy Commissioner on 19 February 2014, permission under Section 109 of the Karnataka Land Reforms Act was granted to the Developer for acquisition of 49.36 acres. The evacuation plan prepared by Karnataka Power Transmission Corporation Ltd. (KPTCL) required the completion of two 220 kV double-circuit transmission lines. Their commissioning was a technical precondition for grid synchronisation.
The Developer sought extension of time, citing delays in the transmission lines. By letter dated 17 May 2014, CESC indicated willingness to extend the timelines only on condition that tariff would be reduced drastically to Rs. 2.39 per kWh. The Developer challenged this by filing proceedings before KERC in O.P. No. 24 of 2014, seeking restoration of the encashed guarantee, extension of time, and tariff retention.
During pendency, KERC passed an interim order on 14 November 2014 restraining CESC from encashing the guarantee. However, the invocation had already been initiated on 12 November 2014, and Rs. 23.40 crores was transferred to CESC’s account on 6 December 2014.
The Developer argued that the project delays were solely due to KPTCL’s failure to complete transmission infrastructure. KPTCL itself admitted through an RTI reply dated 19 August 2014 that the lines would not be ready before August 2015. The Developer asserted that it was impossible to achieve COD under these circumstances.
CESC contended that the Developer had not fulfilled its obligations within time, had not sought extension under Article 5.7 of the PPA, and had not invoked Force Majeure under Article 14.5 by issuing timely notice. Therefore, the encashment of the performance security was justified.
On 28 January 2015, KERC held that the delays constituted Force Majeure and directed refund of the encashed guarantee, extension of timelines, and tariff renegotiation. CESC’s appeal before the Appellate Tribunal for Electricity (APTEL) was dismissed on 21 March 2018. The matter was brought before the Supreme Court by way of Civil Appeal No. 6888 of 2018.
The Court examined the issues in detail. It recorded that: “The record discloses beyond dispute that the evacuation system, integral for delivery of power, was to be executed by Respondent No. 2/KPTCL through the construction of two 220 kV double-circuit lines. By its communication dated 19.08.2014, Respondent No. 2/KPTCL itself acknowledged that the lines would be commissioned only in August 2015, well beyond the contractual timelines.”
On the Developer’s plea of automatic extension, the Court stated: “The contractual framework does not operate on automaticity. Relief is conditional upon the Respondent No. 1/Developer seeking and obtaining an extension under Article 5.7 of the PPA, which was never done. In the absence of such recourse, the timelines under the PPA remained binding.”
On encashment of the bank guarantee, the Court recorded: “Article 4.4 of the PPA confers upon the Appellant the right to encash the performance security where the Respondent No. 1/Developer fails to commence supply by the Scheduled COD, subject to the relief(s) expressly available under the PPA. In the present case, supply did not commence; no extension was obtained; and no notice of Force Majeure was issued. The preconditions for invocation stood satisfied.”
On Force Majeure: “The finding of Force Majeure by the State Commission cannot be sustained for the reason that Article 14.5 stipulates that the affected party ‘shall’ issue notice within seven days. This requirement is not merely directory; it is a condition precedent. Even if delay was beyond the Developer’s control, the appropriate provision was Article 5.7, not Article 14.”
On the character of the PPA: “The PPA does not treat completion of the evacuation system as a legal condition precedent to the Developer’s obligations. It provides specific contractual mechanisms—Article 5.7 for delays attributable to the Appellant and Article 14 for Force Majeure. Unless relief is sought and secured under those provisions, the obligations remain enforceable and remedies intact.”
On the scope of regulatory authority, the Court stated: “Regulatory or adjudicatory fora cannot, under the guise of equity or fairness, rewrite the contractual framework or superimpose obligations alien to the agreement. The jurisdiction of the regulatory bodies does not extend to recasting the contractual framework by directing restitution of amount lawfully realised under the PPA, or by mandating alterations to tariff and timelines.”
The Court concluded that the appeal filed by Chamundeshwari Electricity Supply Company Ltd. must succeed.
It held: “Appellant’s invocation and encashment of the performance security was in full conformity with the contractual framework under the PPA. The non-fulfilment of the Respondent No. 1/Developer’s obligations within the stipulated time, non-seeking of extension under Article 5.7 or valid Force Majeure claim under Article 14, necessarily attracted Article 4.4 of the PPA.”
Accordingly, the Court directed: “The appeal is allowed and the impugned judgment dated 21.03.2018 of the APTEL in Appeal No. 176 of 2015, and the order dated 28.01.2015 of the State Commission in O.P. No. 24 of 2014 are set aside.”
It further ordered that pending applications also stand disposed of with no order as to costs.
Advocates Representing the Parties
For the Petitioners: Mr. Dhruv Mehta, Senior Advocate; Ms. Garima Jain, Advocate-on-Record; Mr. Tushar Kanti Mahindroo, Advocate; Mr. Arnav Khanna, Advocate
For the Respondents: Mr. C. Mohan Rao, Senior Advocate; Mr. Gowtham Polanki, Advocate; Mr. Snehasish Mukherjee, Advocate-on-Record
Case Title: Chamundeshwari Electricity Supply Company Ltd. v. Saisudhir Energy (Chitradurga) Pvt. Ltd. & Anr.
Neutral Citation: 2025 INSC 1034
Case Number: Civil Appeal No. 6888 of 2018
Bench: Justice Sanjay Kumar, Justice Satish Chandra Sharma
