Summary
Adani Power (Mundra) had to install flue gas desulphurisation (FGD) equipment under an environmental-clearance condition, a change in law under its power purchase agreements with Haryana's distribution licensees. The CERC allowed compensation for the FGD but not carrying cost for the period before its order. The Appellate Tribunal for Electricity granted carrying cost from the change-in-law event, with interest on a compounding basis. The procurers accepted carrying cost but contested compound interest, arguing that the PPA allowed compounding only for late payment surcharge and that they were not at fault for the delay. The Supreme Court dismissed their appeal. Article 13.2's restitutionary principle requires restoring the generator to the same economic position, and since it borrowed at monthly-rest interest, only compound interest on carrying cost achieves full restitution.
Issues
- Whether carrying cost payable to a generator for a change-in-law event under the PPA bears simple interest or compound interest
- Whether the procurers' lack of fault for the delay in determination, or the absence of an express compounding provision outside the late payment surcharge clause, excludes compound interest
Provisions considered
- Articles 13.2 and 13.4, read with Articles 11.3.4 and 11.8, Power Purchase Agreements dated 07.08.2008 (Haryana discoms and Adani Power)Article 13.2's restitutionary principle governs compensation for change in law and supports interest on carrying cost on a compounding basis. The late payment surcharge clauses do not limit it. (¶¶ 13, 14, 16, 19)
- Section 125, Electricity Act, 2003This was the route of the appeal from the Appellate Tribunal. The Tribunal's view was upheld. (¶¶ 10, 20)
Held
- Following the earlier decision between the same parties (2019), Article 13.2 embodies a restitutionary principle. The affected party must be restored to the same economic position as if the change in law had not occurred, and carrying cost runs from the date of the change-in-law event. (¶¶ 15, 16)
- Once carrying cost is payable, it cannot be limited to simple interest. The generator financed the FGD with bank borrowings that RBI-regulated banks charge at monthly rests, so restitution is incomplete unless interest on carrying cost is compounded. Such interest is the time value of money. (¶¶ 16, 17)
- The CERC had no justification for excluding the period before its 2018 order. The Tribunal rightly allowed interest on carrying cost from the FGD installation until payment, since the generator had pursued its claim promptly. (¶ 17)
- That the procurers were not at fault for the delay in determination, and that the late payment surcharge clauses provide compounding only for delayed bills, do not displace Article 13. Priya Vart, a land acquisition interest case, does not apply. (¶¶ 18, 19)
Result
Appeal dismissed; the Appellate Tribunal's judgment of 12.08.2021 granting carrying cost with interest on a compounding basis from the change-in-law event was upheld.