Power Purchase Agreement (PPA) — PPA between Bangalore Electricity Supply Company Limited, and the Hirehalli Solar Power Project LLP — The respondent sought an extension of the scheduled commissioning date (SCD) under the force majeure clause of the PPA due to delays in obtaining necessary approvals and licenses —The Karnataka Electricity Regulatory Commission (KERC) rejected the force majeure claim, but the Appellate Tribunal for Electricity (APTEL) reversed the decision, finding that the delay was not attributable to the respondent and that the force majeure clause was applicable — The Supreme Court agreed with the APTEL’s findings and dismissed the appeals — The court also rejected the appellant’s contention that the APTEL’s direction to pay late payment surcharge to the respondent was unjustified, as it was rooted in the PPA and in furtherance of the intention of the parties.

2024 INSC 631

SUPREME COURT OF INDIA

DIVISION BENCH

BANGALORE ELECTRICITY SUPPLY COMPANY LIMITED — Appellant

Vs.

HIREHALLI SOLAR POWER PROJECT LLP AND OTHERS — Respondent

( Before : Pamidighantam Sri Narasimha and Pankaj Mithal, JJ. )

Civil Appeal Nos. 7595, 7608 and 6386 of 2021

Decided on : 27-08-2024

A. Power Purchase Agreement (PPA) — PPA between Bangalore Electricity Supply Company Limited, and the Hirehalli Solar Power Project LLP — The respondent sought an extension of the scheduled commissioning date (SCD) under the force majeure clause of the PPA due to delays in obtaining necessary approvals and licenses —The Karnataka Electricity Regulatory Commission (KERC) rejected the force majeure claim, but the Appellate Tribunal for Electricity (APTEL) reversed the decision, finding that the delay was not attributable to the respondent and that the force majeure clause was applicable — The Supreme Court agreed with the APTEL’s findings and dismissed the appeals — The court also rejected the appellant’s contention that the APTEL’s direction to pay late payment surcharge to the respondent was unjustified, as it was rooted in the PPA and in furtherance of the intention of the parties.

B. Power Purchase Agreement (PPA) — The case involves the extension of the Scheduled Commissioning Date (SCD) for a solar power project in Karnataka due to delays in approvals and other factors — Whether the extension of the SCD under the force majeure clause of the PPA justifies the reduction in tariff payable to the respondents —The petitioner argued that the delay was due to the respondents’ negligence and not covered under the force majeure clause —The respondents claimed the delay was due to factors beyond their control, such as government approvals, and invoked the force majeure clause —The Supreme Court upheld the decision of the Appellate Tribunal for Electricity (APTEL) that the delay was not attributable to the respondents and that the force majeure clause applied —The court found that the delay was due to factors beyond the respondents’ control and that they acted diligently — The court emphasized the importance of interpreting force majeure clauses narrowly and based on the specific terms of the contract — The appeals were dismissed, and the respondents were entitled to the benefit of the force majeure clause, with no reduction in tariff or imposition of liquidated damages.

C. Interpretation of force majeure clauses — The court emphasized that force majeure clauses must be narrowly construed and strictly interpreted — A party seeking to invoke force majeure must prove that the event causing delay or non-performance was beyond its control and not due to its negligence or intentional act.

D. Burden of proof in force majeure claims — The court clarified that the burden of proving the existence of a force majeure event and its impact on performance lies on the party invoking the clause — The court must consider the specific terms of the contract and the factual circumstances to determine whether the event qualifies as force majeure.

E. Attribution of delay — The court highlighted that in cases where there are multiple factors causing delay, the court must examine which party’s actions or omissions primarily contributed to the delay — If the delay is attributable to the party seeking to invoke force majeure, their claim may be rejected.

F. Appellate jurisdiction in regulatory matters — The court discussed the scope of appellate jurisdiction under Section 125 of the Electricity Act, 2003 — It clarified that appellate courts should exercise restraint and not interfere with the findings of fact made by regulatory bodies or tribunals, unless there is a clear error of law or a perverse decision.

G. Late payment surcharge — The court upheld the direction of the Appellate Tribunal to pay late payment surcharge as per the terms of the PPA — It emphasized that such a direction is rooted in the contract and serves to uphold the intention of the parties.

Cases Referred

• Chennamangathihalli Solar Power Project LLP vs. BESCOM, 2020 SCC OnLine APTEL 75
• Energy Watchdog vs. Central Electricity Regulatory Commission, (2017) 14 SCC 80
• SEBI vs. Mega Corporation Limited, 2022 SCC OnLine SC 361
• BSES Rajdhani Power Limited vs. Delhi Electricity Regulatory Commission, (2023) 4 SCC 788

JUDGMENT

Table of Contents

Pamidighantam Sri Narasimha, J. – The short issue arising from these appeals is whether the extension of the Scheduled Commissioning Date[1] was occasioned under the force majeure clause of the Power Purchase Agreement[2], and consequently, whether the reduction in tariff payable to the respondents is justified. While upholding the decision of the Appellate Tribunal for Electricity[3] we have examined the scope and ambit of our appellate jurisdiction under Section 125 of the Electricity Act, 2003[4]. We have held that the restrictive scope of appellate jurisdiction is a product not only of the statutory preconditions, but also a necessary measure to enable freedom to statutory regulator and Tribunal to develop sectorial laws through a principled and consistent approach.

2. Facts: Since the facts and the PPAs are similar in all three appeals, we will deal with the facts in the lead Civil Appeal No. 7595/2021, where the most relevant facts are as follows:

2.1 State of Karnataka introduced a policy dated 26.08.2014 to identify and promote solar energy projects by land-owning farmers. These solar power plants of 1-3 MW capacity would generate and sell power to the State Electricity (Distribution) Supply Companies[5] at the tariff determined by the Karnataka Electricity Regulatory Commission[6].

2.2 Respondent no. 2 is one of the many farmers who applied under the policy and is recognised as a solar power developer[7] under the policy. Respondent No.1 is a special purpose vehicle to undertake the solar power project in Chitradurga district in Karnataka.

2.3 Pursuant to a Letter of Award dated 28.08.2015, the appellant entered into a PPA with respondent no. 2 on 29.08.2015. This PPA was approved by the KERC on 07.09.2015. The relevant clauses of the PPA will be discussed later, but an important aspect to note at this juncture is that the SPV must achieve commercial operation within 18 months from the effective date as per Article 1.1(xxviii) read with Article 4.1(c) of the PPA. Effective date is defined under Article 1.1(xii) as the date of signing the PPA. Hence, the SCD for the project was 28.02.2017 as per these clauses.

2.4 The SPV (respondent no. 1) was incorporated on 05.02.2016. The respondents then submitted an application for land conversion on 16.02.2016. On 10.03.2016, they paid the evacuation approval processing fee. On 27.12.2016, they paid the land conversion processing fee, and the approval for conversion was granted on 07.01.2017. The evacuation scheme was provisionally approved on 13.05.2016, and the final approval was on 22.08.2016.

2.5 Several farmers, including the respondent, raised concerns regarding delay in the execution of the project on account of delay in getting land use conversion, delay in getting evacuation approvals, demonetisation, and other reasons. Hence, the Government of Karnataka by a letter dated 24.11.2016 directed all DISCOMs to set up 3-member committees to examine each request for extension.

2.6 The present respondents requested a 6-month extension under Article 2.5 of the PPA on 03.12.2016. This was approved by the appellant through a letter dated 02.03.2017.

2.7 However, by a letter dated 05.04.2017, KERC directed the DISCOMs that all requests for extensions must be filed before it. Pursuant to this letter, the respondents filed a petition before the KERC seeking extension of time for the commercial operation of the project and invoked the force majeure clause in the PPA (Article 8.3).

2.8 During the pendency of the petition, the respondents solar power project was commissioned on 24.08.2017, within the extended period of 24 months.

3. KERCs order: In its order dated 18.09.2018, the KERC rejected the various causes of delay put forth by the respondents and held that the force majeure clause must be strictly interpreted. First, delay in approval of the PPA by KERC was held to have no bearing on the initial obligations of the SPD in applying for approvals, loans, etc as the respondents had not proved the same. Second, it found that the respondent had applied for conversion of land only on 18.02.2016, over five months after signing the PPA and paid the charges only on 27.12.2016, after which it was allowed on 07.01.2017. Hence, the delay in conversion of land use was attributed to the respondent. Third, the delay in disbursement of loan also did not delay the implementation as the respondent had commenced implementation from its own funds. Fourth, the respondent applied for the evacuation approval only on 25.02.2016, and the regular approval was finally granted on 22.08.2016. Hence, the respondent delayed the application and cannot attribute the same to the authorities. Similarly, the KERC also rejected delay on other grounds such as time taken for delivery of the breaker, and inspection of the project and grant of safety approval.

3.1 It also found that the respondents had not submitted a notice as contemplated under Article 8.3(b)(i) and hence, they are not entitled to invoke force majeure and claim an extension of time under Article 2.5. Since the KERC found that the delay in securing approvals and the consequent delay in commissioning was attributable to the respondents, it imposed liquidated damages under Articles 2.2 and 2.5.7 of the PPA.

3.2 Lastly, the KERC reduced the tariff payable to the respondent to Rs. 4.36 per unit for the term of the PPA by relying on Article 5.1 of the PPA.

4. APTELs impugned order: The respondents appeal against the order of the KERC was allowed by the APTEL by the order impugned before us. The APTEL dealt with each ground of delay raised by the respondents. First, it took note that the respondents application for land conversion was on 16.02.2016, after which it had to procure several documents, including a PTCL certificate, as provided under Rule 106A of the Karnataka Land Revenue Act. Further, these documents must be secured from various government departments, which is a laborious process. The PTCL certificate was issued by the government only on 04.10.2016, although the respondent had applied for it even before signing the PPA. Hence, it found that the respondent could not be blamed for the delay in getting approval for land use conversion.

4.1 Further, the APTEL also took note of the State Governments opinion to grant deemed conversion in such projects due to the number of SPDs facing similar issues. However, the APTEL observed, the guidelines to revenue authorities were unclear and hence the SPDs could not benefit from the same. The delay in the issuance of these guidelines and the confusion among authorities regarding deemed conversion had also resulted in a delay in obtaining land use conversion, which the respondents cannot be faulted for.

4.2 Second, the APTEL found that although the application for grid connectivity and evacuation approval were submitted on 25.02.2016, the final approval was only given on 22.08.2016, after a lapse of 5 months. Until this approval is given, the authorities will not prepare the bay SLD and layout drawings with estimation of bay erection. The bay intimation notice was received by the respondents only a few days before the original SCD, and it was 170 days after the grant of final evacuation approval. Hence, there was a delay in the construction of the bay that was not caused by the respondents.

4.3 Relying on other decisions by the APTEL, it held that the date of signing the PPA will not be the effective date, as provided in Article 1.1(xxviii). Rather, the PPA becomes effective only when it is approved by the KERC, which in this case was on 07.09.2015. Hence, 18 months must be calculated from this date.

4.4 The APTEL observed that the appellant had itself approved the extension of time by 6 months after a Technical Committee constituted by it had scrutinised all relevant documents. Hence, the appellant could not take the stance that the respondents were not diligent. Even before the KERC, the appellant had not objected to the grounds raised by the respondents, and hence they could not take a contrary stance at this stage.

4.5 Considering the delay in obtaining the PTCL certificate and approval for land conversion, the approval for evacuation, and construction of the bay, the APTEL found that the respondents had taken all necessary care and caution and acted with due diligence. Hence, it held that the respondents could not be blamed for the delay 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. Consequently, the APTEL found that the respondents are entitled to the benefit of the force majeure clause and an extension of time, as was already approved by the appellant. The respondents were able to commission the project on 24.08.2017, which falls within the extended period of 24 months from 07.09.2015.

4.6 With regard to the reduction in tariff by the KERC, APTEL considered that the government scheme, under which these PPAs were signed, was intended to create opportunity and benefit for farmers by establishing solar power plants. The farmers had invested huge amounts, sometimes through loans, in these projects and a reduction in tariff from Rs. 8.40 to Rs. 4.36 per unit would adversely affect them. Hence, it directed the appellant to pay the difference in per unit tariff along with the late payment surcharge as provided under Article 6.4 of the PPA.

4.7 Lastly, it also set aside the imposition of liquidated damages under the PPA as it found that there was no delay in securing approvals and commissioning the project.

5. Submissions: We have heard Mr. K.M. Nataraj, ASG and Mr. Yasobant Das, senior advocate appearing for the appellants, and Mr. Basava Prabhu Patil, senior advocate for the respondents. The learned counsels have, through the course of their submissions, emphasised on whether or not the delay in the present matter would be covered under the force majeure clause of the PPA.

5.1 Learned ASG argued that a force majeure clause must be strictly interpreted. There must be a specific pleading by the party claiming force majeure and the burden is on him to prove the same. In this regard, he made two primary submissions: first, there was no force majeure event that warrants an extension of time under Article 2.5 of the PPA; and second, the respondents have not complied with the requirement of submitting a written notice invoking force majeure as required under Article 8.3(b)(i). Further, he has also argued that the APTEL was not justified in granting late payment surcharge to the respondent as the same was not pleaded before the KERC or in appeal.

5.2 In regard the argument on force majeure, Mr. Nataraj has taken us through the various dates concerning approval for change in land use and the evacuation approval. He has submitted that the delay in securing these approvals is attributable to the respondents, who were required to obtain these permissions within the contractually stipulated period of 365 days under Article 2.1 of the PPA, and to finally commission the project within a period of 18 months. Despite being aware of these timelines, he submits that the respondents delayed the applications and payment of requisite fees. The government departments provided the approvals within a few days from the time when the respondents fulfilled all requirements. He therefore submits that the delay is attributable to the respondents and hence, as per Article 8.3(b)(iv), they cannot claim benefit of force majeure. Consequently, the tariff must be reduced as per Article 5.1 as a higher tariff increases the burden on consumers and hence, affects public interest.

5.3 Mr. Das supplemented these submissions by arguing that in Civil Appeal No. 6386 of 2021, the respondents therein had also raised the ground of demonetisation as a reason for delay in commissioning. He submits that Article 8.3 of the PPA does not cover such a ground as a force majeure event.

6. Mr. Patil, appearing for the respondents, has submitted that there are three primary factors, among several others, that caused the delay – (i) time taken for converting the land; (ii) time taken for the KERC to approve the PPA; and (iii) time taken for the evacuation approval. He submits that these concerns have been raised by not only the respondents in the present case but in several other cases. Due to the extent to which SPDs were facing these issues, the government directed DISCOMs to set up committees to look into the same and consider the facts of each case individually. It is pursuant to this direction that the respondents case was considered by the appellant, who granted a 6-month extension on 02.03.2017 by exercising its power under Article 2.5 read with Article 8.3 of the PPA. He submits that it was incorrect for the KERC to then require the respondents to file a separate petition to seek extension as the same is not as per the terms of the PPA. He further submits that the KERC had perversely appreciated the evidence regarding delay and that it should not have rejected the petition when the appellant had already granted the extension. Further, he submitted that the respondents were able to complete the project within the extended time period.

6.1 Mr. Patil also took us through several orders of this Court[8] that dismiss appeals arising out of similar orders by the APTEL. He has specifically referred to the APTELs decision in Chennamangathihalli Solar Power Project LLP vs. BESCOM[9] and has submitted that this decision has been relied on by the APTEL in several subsequent decisions arising out of similar facts, including the present impugned order. This Court has dismissed the appeal arising out of Chennamangathihalli (supra)[10] and appeals from other APTEL orders relying on it. Mr. Nataraj, in his written submissions, has sought to differentiate these cases from the present matter on facts.

7. Scope of Supreme Courts appellate jurisdiction under Section 125 of the Act: Before we deal with the submissions of the learned counsels, we must take note of the scope of our appellate jurisdiction under Section 125, which reads:

7.1 Section 100 of the CPC restricts the High Courts jurisdiction in second appeals to cases that involve substantial questions of law. There are two components to this requirement -(i) there must be a question of law; and (ii) such question of law must be substantial.

7.2 In SEBI vs. Mega Corporation Limited[11], this Court analysed the meaning of question of law to determine the scope of its appellate jurisdiction under Section 15Z of the SEBI Act, 1992[12]. It held that this phrase is open textured and must be interpreted by looking at the words in their context[13]. The relevant portions are extracted:

7.3 The above understanding of question of law as a precondition to this Courts exercise of appellate jurisdiction under regulatory statutes is extremely pertinent to the present matter. The Act envisages the establishment of State Electricity Regulatory Commissions and the Central Electricity Regulatory Commission as expert and specialised bodies that discharge advisory, regulatory, and adjudicatory functions.[14] It has established the APTEL as an appellate body to hear appeals against orders of the adjudicating officers or the Appropriate Commission.[15] Hence, while delineating the contours of this Courts interference in appeal under Section 125, we must be mindful and measured so as to enable a systematic and coherent development of electricity law by the Commissions and the APTEL.

7.4 Having examined the scope of this Courts exercise of appellate jurisdiction when there is a question of law under Section 15Z of the SEBI Act, the position that emerges in this case, it is a little more restrictive as the requirement under Section 125 is not merely a question of a law but a substantial question of law.[16]

8. Analysis on merits: The above discussion provides the context in which we decide the present appeals. We take note of several orders of this Court that have dismissed appeals arising out of similar orders and similar facts[17]. We find it necessary to state our reasons for dismissing the present appeals, to finally settle this issue. We will therefore analyse the submissions of the learned counsels in light of the scope of our jurisdiction and the reasoning and findings of the impugned order.

8.1 At the outset, it is necessary to state that the learned ASG and learned senior counsel for the appellant have not proposed a substantial question of law for this Court to consider. Rather, they have argued on facts as to whether or not the delay is attributable to the respondents, and consequently whether force majeure is applicable. We will analyse the impugned order, as well as the KERCs order, to determine whether there is any substantial question of law that calls for our interference.

9. Clauses of the Power Purchase Agreement (PPA): Before discussing the orders of the KERC and the APTEL, it is necessary to identify the relevant clauses of the PPA. Article 2.1 of the PPA imposes the obligation on the SPD to secure necessary approvals, clearances, and permits within 365 days. Liquidated damages can be imposed on the SPD under Article 2.2 in case of delay, provided that the delay is not attributable to the appellant or due to a force majeure event.

9.1 Article 2.5.1 permits the extension of the SCD in case the SPD is unable to fulfil its contractual obligations due to the appellants default or there are force majeure events that affect either the appellant or the SPD. The list of force majeure events is set out in Article 8.3(a), and sub-clause (vi) is the most relevant for us. A party can invoke the force majeure clause subject to the conditions set out in Article 8.3(b).

9.2 Article 2.5.7 provides that subject to the other provisions of the PPA, the SPD is liable to pay liquidated damages if it is unable to supply power to the appellant by the SCD. Therefore, the payment of damages under this clause is subject to an extension of time under Article 2.5.1. Article 5.1 provides for the tariff rate payable to the SPD as Rs. 8.40 per unit. However, in cases of delay, subject to extension of time under Article 2.5, it provides that the lower of Rs. 8.40 per unit and the varied tariff applicable as on the date of commercial operation will apply. A plain reading of Article 5.1 makes it clear that the lower tariff will not apply if there is an extension of time under Article 2.5.

9.3 The relevant clauses of the PPA are reproduced for ready reference:

10. Re: Applicability of the force majeure clause: The primary issue for our consideration is whether the delay in this case is due to a force majeure event as defined under Article 8.3, and consequently whether the respondents were entitled to an extension of time under Article 2.5. If the answer to these questions is affirmative, the tariff cannot be lowered under Article 5.1 and liquidated damages cannot be imposed under Articles 2.2 and 2.5.7.

10.1 The law on force majeure, specifically in the context of PPAs, has been comprehensively dealt with by this Court in Energy Watchdog vs. Central Electricity Regulatory Commission[18]. The Court delved into contractual jurisprudence on force majeure clauses and frustration of contracts. It held that Sections 32 and 56 of the Indian Contract Act, 1872[19] govern the law on force majeure. When the contract contains an express or implied force majeure clause, it is governed under Chapter III of the Contract Act, specifically Section 32. In such cases, the doctrine of frustration in Section 56 does not apply and the court must interpret the force majeure clause contained in the contract[20]. It held that a force majeure clause must be narrowly construed[21].

10.2 The present case is clearly one where the PPA contains an explicit force majeure clause in Article 8.3, which has already been extracted above. The question is whether the delay in commissioning falls within the ambit of this clause. Article 8.3(a)(vi) is the most relevant force majeure event that would apply to the facts here. It reads:

Article 8.3(b)(iv) disentitles a party from claiming force majeure when the event was caused by its own negligence, intentional act, or omission. It reads:

10.3 When these clauses are read together, it is clear that the SPD would be entitled to the benefit of Article 8.3(a)(vi) when it is unable to secure the necessary approvals and licenses required under the PPA, provided that there is no negligence or intentional act or omission on its part that caused this situation.

10.4 The entire dispute before the KERC and the APTEL revolves on a question of fact – whether the respondents were negligent or not diligent in securing approvals and hence, is the delay in commissioning attributable to them. The KERCs appreciation of the evidence has led it to the conclusion that the delay in commissioning was due to the respondents delay in making the applications, despite the approval of the PPA. However, the APTEL has taken note of certain additional factors affecting the time taken to secure the approvals that were not considered by the KERC. These include the time taken by the government to provide the PTCL that is required for approval of land conversion, and the delay caused by the authority in evacuation approval. Considering these additional factors, the APTEL has re-appreciated the evidence to find that the delay was not attributable to the respondents but to the government bodies and relevant authorities. We find that there is no error in the APTELs approach, and it is reasonable in its re-appreciation of evidence.

10.5 Further, the APTEL also correctly took note of the fact that a large number of SPDs have raised similar issues, and the government has responded to the same by requiring DISCOMs to set-up committees to look into these cases. The large number of cases that raise similar grounds and the governments response show that the delay was not faced by the respondents alone, and hence cannot be entirely blamed on them. The government has itself acknowledged that the land use conversion process is a long and arduous one, which led it to deem conversion for solar power projects under the present scheme. However, due to lapses in the implementation of the deemed conversion, the SPDs were unable to avail the same. The APTEL has rightly appreciated these facts to hold that the respondents acted diligently and with care and caution to secure approvals, and hence their claims cannot be rejected through recourse to Article 8.3(b)(iv).

11. Finally, we have also considered the letter by the appellant dated 02.03.2017 that granted a 6-month extension to the respondents after considering its individual facts and circumstances. This grant of extension must be seen in light of the governments direction to DISCOMs dated 24.11.2016 to set up 3-member committees to consider each request for extension. This shows that the appellant, after considering the specific case of the respondents, has itself accepted that they are entitled to the benefit of Article 2.5 read with Article 8.3 of the PPA. Even before the KERC, the appellant did not challenge the respondents contentions. Therefore, at the appellate stage before the APTEL and this Court, they cannot be permitted to take a contrary stance and raise the plea that the delay was attributable to the respondents and not covered by the force majeure clause or that there was non-compliance with the notice requirement under Article 8.3(b)(i). We therefore reject the contentions of the appellant that force majeure does not apply in this case.

12. In light of the above findings of fact by the APTEL that the delay is not attributable to the respondents and that the force majeure clause is applicable, it rightly held that the extension of time under Article 2.5 is warranted and the commissioning of the project on 24.08.2017 is within the extended period of 24 months. Consequently, the APTEL also rightly held that there is no occasion for the imposition of liquidated damages under Articles 2.2 and 2.5.7 or for the reduction of tariff under Article 5.1 of the PPA.

13. Conclusion: After considering the learned counsels submissions in light of the above findings of the APTEL, we find that no substantial question of law arises in the present case. The APTEL has primarily decided a question of fact as to the attributability of the delay, and from the above, it is clear that the APTELs findings are neither illegal nor unreasonable. Hence, we find no reason to interfere with the same.

14. Lastly, we also reject the appellants contention that the APTELs direction to pay late payment surcharge to the respondents is unjustified since the same was not pleaded. As we have already held, the APTEL rightly restored the tariff of Rs. 8.4 per unit and directed the appellant to pay the difference amount. The direction to pay the late payment surcharge on this amount is explicitly rooted in the PPA, and hence, is in furtherance of the intention of the parties. There is no reason to set aside the same.

15. With the above reasons, we dismiss the present appeals.

16. No order as to costs.