Recently, the Supreme Court was drawn into a long-standing dispute between Gujarat Urja Vikas Nigam Limited (hereinafter referred to as “GUVNL”) and Essar Power Limited (EPL), revolving around allegations of fuel diversion, capacity declaration, and financial claims under a Power Purchase Agreement (hereinafter referred to as “PPA”). The matter gained significance as EPL challenged GUVNL’s assertions of under-declaration and diversion, arguing that its prior correspondence did not amount to any binding admission of liability, while also questioning the computation of diversion, recovery of fixed charges, and deemed generation incentives.
Brief Facts:
The case arose from a power-sharing arrangement between Gujarat Electricity Board (hereinafter referred to as “GEB”), now GUVNL, and EPL under a PPA signed in 1996. As per the agreement, electricity generated from EPL’s Hazira plant was to be shared in a 58:42 ratio between GEB and Essar Steel Limited (hereinafter referred to as “ESL”), EPL’s sister concern. However, EPL allegedly supplied excess power to ESL beyond its allocated share, which GEB treated as wrongful diversion amounting to “deemed supply. Though EPL initially accepted a provisional compensation of ₹64 crore for the period 1998 to 2004, disputes persisted regarding its finality. Following the unbundling of GEB, GUVNL pursued the matter before the Gujarat Electricity Regulatory Commission (hereinafter referred to as “GERC”), which held that EPL was obligated to declare full plant capacity and supply electricity in the agreed proportion between GUVNL and ESL.
Contentions of Appellant:
The counsel for Appellant contended that EPL breached the 1996 PPA by diverting electricity from its 515 MW Hazira plant to ESL beyond the agreed 300:215 MW ratio, causing losses to GUVNL. They argued that the diverted electricity should be treated as a deemed supply, entitling them to compensation, including reimbursement of fixed charges and energy charges calculated on the HTP-1 tariff less variable costs. The counsel stressed EPL’s duty to declare full plant capacity and schedule dispatch accordingly. The counsel for appellant also rejected limitation defences for claims before 2002 and denied that earlier settlements constituted full and final payment, asserting entitlement to compensation for diversions post-September 2004 under previously accepted methodology.
Contentions of Respondents:
The counsel for Respondents contended that they were not obliged to declare the full generating capacity on a proportionate basis and that any non-declaration did not cause proven loss to GUVNL. They argued that letters or correspondence acknowledging diversion did not create binding liability, and prior settlements till 2004 resolved diversion claims in full. EPL also challenged the methodology of diversion computation and compensation, including the reimbursement of fixed charges and penalties, adoption of half-hourly instead of hourly diversion calculations, and accounting elements of deemed generation and delayed payment charges. The respondents further maintained that certain aspects of GERC’s order and APTEL’s judgment were partly erroneous.
Observations of the Court:
The Court observed that the GEB, predecessor-in-interest to GUVNL, entered into a PPA, with EPL for 300 MW supply out of EPL’s Hazira plant capacity of 515 MW. EPL supplied the remaining 215 MW to ESL, a related company, with both allocation shares rounded to 58:42.
The Court noted the breach that led to litigation dated back prior to 2005, where EPL supplied more power to ESL than its allocated share from GEB’s proportion, constituting wrongful diversion. EPL’s letter dated February 17, 2000, recognized that if ESL drew more power than its allocation, GEB should charge ESL for the excess as deemed power supply, though without penalty to EPL.
GERC’s 2009 order, restored by this Court in 2016, was recited stating EPL was “obligated at all times under the PPA dated 30.05.1996 to declare the capacity from its entire generating station” and supply power “in proportion to the allocated capacity of 300 MW: 215 MW, in accordance with the dispatch instructions.” EPL could not argue for supply to ESL beyond its allocated share.
On compensation, GERC held diversion should be calculated hourly using the HTP-1 Tariff Energy Charge minus variable costs, and GUVNL was entitled to reimbursement of fixed charges for shortfall. The Court also noted the Central Electricity Authority’s 2005 recommendation of half-hourly meter reading, adopted by parties thereafter, and holding it appropriate for diversion computation.
Regarding reimbursement of fixed charges, the Court stated that "it is not open to EPL to claim fixed charges twice over, by appropriating the excess fixed charges paid by GUVNL for electricity that was never supplied to it from its allocated proportionate share, on the one hand, and also pocketing the fixed charges paid by ESL for the extra electricity that was supplied to it from out of GUVNL’s share. In this regard, we may note that the PPA dated 29.06.1996 between EPL and ESL also provided for similar fixed charges being paid by ESL for the electricity supplied towards its proportionate share. Once that proportion was not adhered to and excess power was supplied to ESL, EPL would obviously collect fixed charges from ESL for such excess power supply also. The finding of GERC and the APTEL that GUVNL is not entitled to reimbursement of fixed charges is, therefore, unsustainable."
The Court emphasized that “GUVNL was entitled to reimbursement of the fixed charges, in relation to the diverted electricity from out of its allocated share, in addition to the compensation payable for such wrongful diversion.”
Further, the Court clarified that compensation was for loss due to breach while reimbursement of fixed charges was contractual and not contingent on breach.
The Court rejected EPL’s attempt to avoid half-hourly computation after having itself requested and implemented it. It stated that“Having invited that methodology for supply of power so as to avoid installation of a circuit breaker, EPL cannot fight shy of the same methodology being adopted for computation of the excess power diverted by it to ESL from out of the allocated share of GUVNL.”
The decision of the court:
The Court upheld GUVNL’s entitlement to compensation and reimbursement for power diversion by EPL, affirmed the adoption of half-hourly computation as per CEA recommendations, modified the orders of GERC and APTEL accordingly, and disposed of the appeals with both parties directed to bear their own costs.
Case Title: Gujarat Urja Vikas Nigam Limited versus Essar Power Limited and Another
Case No.: Civil Appeal Nos. 6581- 6582 of 2025
Citation: 2025 Latest Caselaw 935 SC
Coram: HMJ Sanjay Kumar and HMJ Alok Aradhe
Counsel for the Appellant: Sr. Adv. C.A. Sundaram, Sr. Adv. M.G. Ramachandran, Aor Hemantika Wahi, Adv. Anand Ganesan, Adv. Ranjitha Ramachandran, Adv. Jesal Wahi, Adv. Srishti Khindaria, And Adv. Utkarsh Singh.
Counsel for the Respondent: Sr. Adv. C.S. Vaidyanathan, Sr. Adv. Buddy Ranganatdhan, Adv. Mahesh Agarwal, Adv. Rohan Talwar, Aor E.C. Agrawala, Adv. Shashwat Singh, Adv. Naman Agarwal, Adv. Shefail Tripathi
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