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Supreme Court of India upholds the restrictive scope of its appellate jurisdiction under Section 125 of the Electricity Act, 2003

On August 27, 2024, the Hon’ble Supreme Court of India (“Supreme Court”) has rendered its final Judgment in Bangalore Electricity Supply Company Limited and Ors. vs. Hirehalli Solar Power Project LLP and Ors. & Batch[1] (“Judgment”), wherein it has, inter alia:

reiterated that the scope of its jurisdiction under Section 125 of the Electricity Act, 2003 (“Electricity Act”) is restricted only to deciding “substantial questions of law”;
reiterated that force majeure provisions in contracts are governed by Section 32 of the Indian Contract Act, 1872 (“Contract Act”)[2] and not Section 56 of the Contract Act[3]; and
directed that late payment surcharge (“LPS”) is explicitly rooted in the Power Purchase Agreements (“PPAs”), and hence, is in furtherance of the intention of the parties. Therefore, direction for payment of LPS need not be separately pleaded.

In doing so, the Supreme Court dismissed the civil appeals[4] and upheld an order passed by the Appellate Tribunal for Electricity (“APTEL”) grating extension of the Scheduled Commissioning Date (“SCD”) of the Solar Power Project (“Project”). Consequently, the tariff payable to Solar Power Developers (“SPDs”) was restored to INR 8.40 (Indian Rupees eight Paise forty) per unit.

Brief facts

On August 26, 2014, the State of Karnataka introduced a policy to identify and promote solar energy projects of land-owning farmers. In terms of the policy, solar power plants would generate and sell power to state electricity distribution companies at a tariff determined by the Karnataka Electricity Regulatory Commission (“KERC”).
Pursuant to a Letter of Award, on August 29, 2015, the Bangalore Electricity Supply Company Limited (“BESCOM’) entered into a PPA with one of the SPDs (“BESCOM PPA”). Similar PPAs were executed between other SPDs and electricity distribution companies. In terms of the BESCOM PPA, the Project ought to have been commissioned within 18 (eighteen) months from the ‘effective date’, hence, the SCD of the Project was February 28, 2017.
Pursuant to the execution of the PPAs, SPDs raised concerns regarding delays in the execution of the Project, on account of delay in approvals for conversion of land for industrial purposes, delay in getting evacuation approvals, grid connectivity and demonetisation. Petitions[5] were filed by SPDs before KERC seeking an extension of six months for the commercial operation of the Project while invoking the force majeure clause in terms of the PPAs. During the pendency of proceedings before KERC, the Project was commissioned, within the extended period of 24 (twenty-four) months.
KERC vide Order dated September 18, 2018 (“KERC’s Order”), in the petitions, inter alia, rejected the various causes of delay put forth by SPDs, imposed liquidated damages and reduced the tariff payable in terms of the PPAs.
Aggrieved by KERC’s Order, SPDs appealed before APTEL, which, while overruling KERC’s Order, inter alia, held (a) the delay in execution of the Project was not attributable to SPDs as the time taken by government authorities to provide approvals was not within their control and they had taken all the measures that they could; (b) SPDs are entitled to the benefit of the force majeure provisions and an extension of time, as has also been previously approved by KERC; (c) SPDs were able to commission the Project within the extended period of 24 (twenty-four) months; (d) APTEL directed SPDs to pay the difference per unit tariff along with LPS in terms of the PPAs; and (e) set aside imposition of liquidated damages (Impugned Order).

Issue

Civil Appeals were filed before the Supreme Court raising the question of whether extension of SCD was occasioned in terms of the force majeure provisions of the PPAs and consequently, whether the reduction in tariff was justified.

Notable findings of the Supreme Court

Section 125 of the Electricity Act provides for an appeal to be filed before the Supreme Court on any one or more of the grounds specified in Section 100 of the Civil Procedure Code, 1908[6] (“CPC’”). The Supreme Court held that Section 100 of the CPC restricts High Courts’ jurisdiction in second appeals to cases that involve a ‘substantial question of law’. The Supreme Court in SEBI vs. MEGA Corporation Limited[7] has analysed the term ‘question of law’ to hold that the said term is ‘open textured’ and must be interpreted by looking at the words in light of their context. The Electricity Act envisages the establishment of SERCs as specialised bodies that discharge advisory, regulatory and adjudicatory functions and APTEL to hear appeals against orders of SERCs.
In respect of whether the delay in commissioning the project is covered by the force majeure provisions of the PPAs, the Supreme Court held as follows:
1. there have been no ‘substantial questions of law’ raised before the Supreme Court;
2. the Supreme Court, has, in several orders dismissed appeals arising out of similar facts;
3. the delay in commissioning the project falls within the purview of force majeure provisions stipulated in Article 8 of the PPAs;
4. SPDs are entitled to benefit under force majeure provisions as they are unable to secure necessary approvals, licenses etc. (provided that there is no negligence or intentional act or omission);
5. the dispute before KERC and APTEL revolves around questions of fact. APTEL has rightly reappreciated evidence to find that the delay in the project was not attributable to SPDs but to government bodies and relevant authorities. SPDs have acted diligently and with care and caution to secure approvals, hence their claims cannot be rejected;
6. APTEL has correctly noted that a large number of SPDs have raised similar issues, and the government has responded to the same by requiring electricity distribution companies to set up committees to look into these cases. The large number of cases that raise similar grounds and the government’s response show that the delay was not faced by the SPDs alone, and hence cannot be entirely attributed to them;
7. the extension provided was warranted and the commissioning of the project was within the extended period. Therefore, there is no occasion for reduction in tariff or for imposition of liquidated damages; and
8. since the levy of LPS on the tariff amount is explicitly rooted in the PPA, it need not be separately pleaded.

Conclusion

The Judgment reiterates that the scope of Supreme Court’s jurisdiction under Section 125 of the Electricity Act is restricted only to deciding ‘substantial questions of law’ and force majeure provisions in contracts are governed by Section 32 of the Contract Act and not Section 56 of the Contract Act. In such instances, courts ought to interpret force majeure events as contractually agreed amongst the parties. Further, if payment of LPS is explicitly rooted in PPAs, it need not be separately pleaded. Delays in commissioning projects which are beyond the reasonably foreseeable control of parties fall under the purview of force majeure events.

The Judgment recognises the importance of freedom accorded to the sectoral regulator, to subserve the regulatory regime as envisaged in terms of the Electricity Act. It is also in tandem with Supreme Court’s recent judgment in BSES Rajdhani Power Ltd. vs. Delhi Electricity Regulatory Commission[8], which laid down tests to determine whether a case involves a ‘substantial question of law’. The findings and observations of the Judgment bolster and justify that a court sitting in second appellate jurisdiction is to frame a ‘substantial question of law’ and ought not to interfere in questions of fact.

Further, this Judgment recognises the supremacy of the contractual agreements between parties while interpreting contingency and penal provisions, thus bolstering the sanctity of such long-term contracts.

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