Summary of the Judgment
Case Name: Bangalore Electricity Supply Company Limited v. Hirehalli Solar Power Project LLP & Others
Date of Judgment: 27th August 2024
Judges: Hon'ble Justice Pamidighantam Sri Narasimha and Hon'ble Justice Pankaj Mithal
Advocates:
For the Appellants: Mr. K.M. Nataraj, Additional Solicitor General, and Mr. Yasobant Das, Senior Advocate
For the Respondents: Mr. Basava Prabhu Patil, Senior Advocate
Acts and Sections:
Electricity Act, 2003, specifically Section 125,
Indian Contract Act, 1872 (Sections 32 and 56)
Cited Judgments:
Energy Watchdog v. Central Electricity Regulatory Commission, (2017) 14 SCC 80
SEBI v. Mega Corporation Limited, 2022 SCC OnLine SC 361
BSES Rajdhani Power Limited v. Delhi Electricity Regulatory Commission, (2023) 4 SCC 788
Introduction
The Supreme Court of India, in a recent judgment dated 27th August 2024, adjudicated on the appeals filed by the Bangalore Electricity Supply Company Limited (BESCOM) against the orders of the Appellate Tribunal for Electricity (APTEL). The core issue in these appeals revolved around whether the extension of the Scheduled Commissioning Date (SCD) for a solar power project was justified under the force majeure clause of the Power Purchase Agreement (PPA). This article delves into the legal reasoning employed by the Supreme Court, examining the key aspects of the judgment and its implications for the legal fraternity, particularly in the context of power purchase agreements and the application of force majeure clauses.
Background of the Case
The dispute arose from a policy introduced by the State of Karnataka on 26th August 2014, aimed at promoting solar energy projects by land-owning farmers. Under this policy, solar power plants with capacities ranging from 1 to 3 MW were to generate and sell electricity to the State Electricity (Distribution) Supply Companies (DISCOMs) at tariffs determined by the Karnataka Electricity Regulatory Commission (KERC).
The respondents, Hirehalli Solar Power Project LLP, were selected under this scheme and entered into a PPA with BESCOM on 29th August 2015. The agreement mandated the project’s commercial operation within 18 months from the effective date, which was set as 28th February 2017. However, due to delays in securing necessary approvals, the respondents could not meet this deadline and sought an extension under the force majeure clause of the PPA.
KERC and APTEL’s Findings
The respondents' request for an extension was initially denied by the KERC on 18th September 2018. The KERC ruled that the reasons cited for the delay, such as delays in land use conversion and evacuation approvals, did not constitute valid grounds under the force majeure clause. Consequently, the KERC imposed liquidated damages and reduced the tariff payable to the respondents from Rs. 8.40 per unit to Rs. 4.36 per unit.
On appeal, APTEL overturned the KERC’s decision, holding that the delays were beyond the respondents’ control and justified an extension under the force majeure clause. APTEL further restored the original tariff of Rs. 8.40 per unit and set aside the liquidated damages imposed by the KERC.
Supreme Court’s Analysis
The Supreme Court’s analysis was rooted in the interpretation of the force majeure clause within the PPA and the extent of its appellate jurisdiction under Section 125 of the Electricity Act, 2003. The Court noted that its jurisdiction under this section is limited to substantial questions of law, rather than mere factual disputes.
Scope of Appellate Jurisdiction
The Court emphasised that its role in such cases is restricted to examining whether the appellate body, in this case, APTEL, has correctly applied the law to the facts. The judgment cites SEBI v. Mega Corporation Limited to underline that the Supreme Court must be cautious in interfering with factual findings unless they raise a substantial question of law. The Court acknowledged that regulatory bodies like APTEL have the expertise to develop sector-specific laws through a consistent approach, and undue interference would disrupt this process.
Force Majeure Clause Interpretation
The interpretation of the force majeure clause in the PPA was central to the case. The clause, as outlined in Article 8.3(a)(vi) of the PPA, allows for an extension of the SCD if the delay was caused by an inability to obtain necessary approvals despite complying with all legal requirements. The Court referred to its earlier ruling in Energy Watchdog v. Central Electricity Regulatory Commission, which held that force majeure clauses must be narrowly construed.
In this case, the respondents faced delays due to factors such as the time taken for land use conversion and evacuation approvals, which were beyond their control. The Court found that these delays fit within the scope of the force majeure clause, particularly since the respondents had acted diligently in securing the necessary approvals.
Reappreciation of Evidence
A significant aspect of the judgment was the Supreme Court's endorsement of APTEL’s reappreciation of evidence. The Court noted that APTEL had considered additional factors, such as the general difficulties faced by several solar power developers in obtaining land conversion approvals, which were not adequately addressed by the KERC. The Court agreed with APTEL that the delays were primarily due to inefficiencies in government processes and were not attributable to the respondents.
Government’s Role and the Principle of Consistency
The Court also highlighted the government's role in addressing widespread issues faced by solar power developers. The Karnataka government had directed DISCOMs to set up committees to review extension requests on a case-by-case basis, acknowledging the systemic delays in approvals. The Supreme Court found this to be a crucial factor, reinforcing the need for a consistent and fair approach in similar cases. This consistency, the Court argued, is essential for the coherent development of electricity law.
Conclusion
In concluding the judgment, the Supreme Court dismissed the appeals, affirming APTEL’s decision. The Court held that the delays were indeed covered under the force majeure clause, and the respondents were entitled to the extended SCD. Consequently, the reduction in tariff and the imposition of liquidated damages were deemed unjustified.
The judgment is significant for several reasons. Firstly, it reaffirms the limited scope of the Supreme Court’s appellate jurisdiction under Section 125 of the Electricity Act, focusing on substantial questions of law rather than factual disputes. Secondly, it provides a nuanced interpretation of force majeure clauses within PPAs, emphasising that delays caused by systemic inefficiencies in government processes can indeed qualify as force majeure events. Finally, the judgment underscores the importance of a consistent approach by regulatory bodies in interpreting and applying sector-specific laws.
In the words of Hon'ble Justice Pamidighantam Sri Narasimha,
"The freedom to evolve and interpret laws must belong to the Tribunal to subserve the regulatory regime for clarity and consistency. These are policy and functional considerations which the Supreme Court will keep in mind while exercising its jurisdiction."
This judgment is a testament to that principle, balancing the need for legal certainty with the practical challenges faced by parties in fulfilling their contractual obligations.
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