Summary
A solar power developer failed to achieve commercial operation under a power purchase agreement because the State transmission utility had not commissioned the evacuation lines; the distribution licensee encashed the performance bank guarantee. The State Commission, affirmed by APTEL, treated the delay as force majeure and directed restoration of the guarantee, extension of timelines and renegotiation of tariff. The Supreme Court set those orders aside: the developer had neither sought extension under the PPA's extension clause nor given the mandatory force majeure notice, so the encashment was a remedy the contract conferred, and regulatory fora cannot rewrite a competitively bid, approved contract in the name of equity.
Issues
- What was the effect of the transmission utility's delay in commissioning the 220 kV evacuation lines on the PPA timelines for fulfilment of conditions precedent and achievement of commercial operation?
- Whether the distribution licensee was entitled to invoke and encash the performance bank guarantee under Article 4.4 of the PPA.
- Whether a finding of force majeure could be sustained when the notice required by Article 14.5 of the PPA was never given.
- Whether the PPA was a contingent contract so that the developer's obligations depended on completion of the evacuation system.
- Whether the State Commission and APTEL had jurisdiction to direct restoration of the bank guarantee, extension of timelines and renegotiation of tariff.
Provisions considered
- Contingent contract (no section specified by the Court), Indian Contract Act, 1872The appellant characterised the PPA as a contingent contract. The Court held that, although completion of the evacuation system was an uncertain event outside the developer's control on which supply practically depended, the PPA did not make that completion a condition precedent in law to the developer's obligations; it provided specific mechanisms (Article 5.7 for delays attributable to the licensee and Article 14 for force majeure), and unless relief was sought and secured under them the time-bound obligations remained enforceable. (¶¶ 13, 41)
Held
- The PPA did not operate on automaticity. Even though the evacuation lines to be built by the transmission utility were admittedly delayed beyond the contractual timelines, relief was conditional on the developer seeking and obtaining an extension under Article 5.7 of the PPA, which was never done; the timelines therefore remained binding. That the licensee and the transmission utility were both State instrumentalities did not alter the position, since contractual rights and remedies must be asserted within the framework of the agreement. (¶¶ 37, 38)
- Article 4.4 of the PPA entitled the licensee to encash the performance security where supply did not commence by the scheduled commercial operation date, subject only to relief expressly available under the PPA. Supply did not commence, no extension was obtained under Article 5.7 and no force majeure notice was issued under Article 14.5, so the preconditions for invocation were satisfied; the invocation on 12.11.2014 also preceded the State Commission's restraint order of 14.11.2014. (¶¶ 39, 44)
- The State Commission's finding of force majeure could not be sustained. Article 14.5 requires the affected party to give notice within seven days of knowledge of the event, and that requirement is a condition precedent to relief, not merely directory. Further, delay in readiness of the evacuation system, even if attributable to the transmission utility, is not a force majeure event as defined in Article 14.3.1; the appropriate provision was Article 5.7, and the omission to pursue relief under the correct clause cannot be cured by recourse to an inapplicable one. (¶ 40)
- The explicit terms of a contract are the final word on the parties' intention. Regulatory or adjudicatory fora cannot, under the guise of equity or fairness, rewrite the contractual framework or superimpose obligations alien to the agreement; a PPA concluded through competitive bidding and approved by the regulator must be construed and enforced strictly according to its stipulations. (¶ 42)
- The jurisdiction of the State Commission and APTEL is to ensure compliance with law and adjudicate disputes within the four corners of the contract. It does not extend to directing restitution of an amount lawfully realised under the PPA or mandating alterations to tariff and timelines inconsistent with the agreement; the directions for restoration of the performance security, extension of timelines and renegotiation of tariff transgressed that jurisdiction. (¶ 43)
Result
Appeal allowed; APTEL judgment dated 21.03.2018 in Appeal No. 176 of 2015 and the State Commission's order dated 28.01.2015 in O.P. No. 24 of 2014 set aside; pending applications disposed of; no order as to costs.