In C.A. No(s). 3480-3481 OF 2020-SC- As a judicial Tribunal dealing with contracts & bargains, APTEL is not expected to casually render findings of coercion & fraud, without proper pleadings, proof or evidence, says Apex Court
JusticeS Sanjay Kishan Kaul, S. Ravindra Bhat & M.M. Sundresh [13-04-2023]

Read Judgment: GUJARAT URJA VIKAS NIGAM LIMITED & ORS Vs. RENEW WIND ENERGY (RAJKOT) PRIVATE LIMITED & ORS 

Tulip Kanth

April 17, 2023: While allowing an appeal filed by the authorized licensee- Gujarat Urja Vikas Nigam Limited, the Supreme Court has pulled up the Appellate Tribunal for Electricity (APTEL) for virtually rubber stamping the State Commission’s findings on coercion with regard to the Power Purchase Agreements in the most cavalier fashion.

“There was no shred of evidence, nor any particularity of pleadings, beyond a bare allegation of coercion, alleged against Gujarat Urja. It is incomprehensible how such an allegation could have been entertained and incorporated as a finding, given that the respondents are established companies, who enter into negotiations and have the support of experts, including legal advisers, when contracts are finalized”, the Larger Bench of Justice Sanjay Kishan Kaul, Justice S. Ravindra Bhat and Justice M.M. Sundresh held.

 A Power Purchase Agreement (PPA) in terms of the Renewable Energy Generation Regulations 2010, was entered into between the Gujarat Urja and the wind power developers (WPDs) including respondent-Renew Wind Energy (Rajkot) Pvt Ltd (RWE)  in 2012.  The appellant-Gujarat Urja is an authorized licensee which procures power in bulk on behalf of distribution licensees in the state of Gujarat. 

The respondents were Renew Wind Energy (Rajkot) Pvt Ltd- wind generator, Wind Independent Power Producers Association, Gujarat Electricity Regulatory Commission & Wish Wind Infrastructure LLP.

The WPDs were ensured tariff at Rs. 2.64 per unit plus tradable RECs whose price was determined on the basis of the weighted average pooled price. Distribution licensees were enabled to adjust such quantum of power purchased towards RPO specified under Section 86(1)(e) of the Electricity Act. Thus, the interests of both segments of the industry were taken care of.

In the year 2013, Central Commission amended the REC Regulations 2010 (Second Amendment) and replaced "at a price not exceeding pooled cost of the power purchase “with" at the pooled cost of power purchase" along with the relevant statement of reasons for the said amendment. It was clarified in the amendment that PPAs already executed prior to this amendment at a tariff lower than APCC would not be affected.

The respondents were aggrieved by the order of the Central Commission. They filed a petition before the State Commission arguing that the terms of the PPA had to be changed in view of the change in the REC regulations. This petition was allowed by the State Commission directing that the order of the Central Commission was general and was therefore applicable to all similarly situated wind power generators.

Aggrieved by the order of the State Commission, Gujarat Urja had preferred an appeal before Appellate Tribunal for Electricity (APTEL) which was rejected. The appellants preferred review petition which was also dismissed. The Civil Appeals in question challenged orders of the APTEL.

The Bench was of the view that by virtue of Section 42 of the Electricity Act, 2003, it is subject to open access determination of the price of power, and subject to Section 63 wherever it involves open bidding. 

In the facts of this case, the PPA incorporated a tariff between the respondents and Gujarat Urja constituted the tariff fixed by the State Regulatory Commission in the exercise of its statutory powers. The issue and sale of RECs, constituted an important part of that bargain, between the two parties, based on the assessment of their commercial interest.

The Bench took note of the fact that the PPA was entered into by the parties within the control period stipulated in the tariff order of 2010. The change in the REC Regulations 2010, whereby the Explanation to Regulation 5 was amended resulted in a change. The pre-existing clause that the power would be at a price not exceeding pooled cost of the power purchase was altered to at the pooled cost of power purchase. This change, was through the Second Amendment (to the REC Regulations), carried out in 2013.

For the period between March 29, 2102 and July 10, 2013 - and indeed, after the Second Amendment, no difficulty was experienced in the pricing mechanism agreed by the parties, under the PPA. It was on December 10, 2013 that the respondent-WPD approached the state commission for re-determination of tariff. 

“Clearly, this was an opportunistic attempt to derive advantage from the change, brought about by the Second Amendment, and seek to have it applied to an existing contract, which cannot be countenanced. In view of these reasons, it is held that the reasoning of APTEL, and the State Commission cannot be upheld”, the Bench said.

Noting that the PPAs were entered into in the exercise of equal bargaining power, after due negotiation by the parties, and within the framework of existing regulations: both central and state, the Bench held that unless any later amendment expressly overrides existing contracts, the terms of such agreements bind the parties.

It was opined by the Top Court that the agreements, such as the PPAs in the present case, entered into, voluntarily by the parties, before the Second Amendment, were not affected, by its terms.

On the issue of coercion, the Bench noticed that the State Commission had concluded that the PPAs were also unenforceable, to the extent of being in non-conformity with the pre-amended Rule 5, of the REC Regulations, as the contracts were entered into by parties with unequal bargaining power. 

As per the Bench,  if coercion or fraud is alleged, it must be set out with full particulars. In the present case, this salutary rule was thrown to the wind, by the State Commission. The findings regarding coercion were wholly untenable, the bench added.

“This court is also of the opinion that the casual approach of APTEL, in not reasoning how such findings could be rendered, cannot be countenanced. As a judicial tribunal, dealing with contracts and bargains, which are entered into by parties with equal bargaining power, APTEL is not expected to casually render findings of coercion, or fraud, without proper pleadings or proof, or without probing into evidence”, the Bench stated while setting aside the findings of coercion and allowing the appeal.