Essar Power Limited vs Gujarat Electricity Regulatory Commission & Anr on 29 May 2026

1. Gujarat Electricity Regulatory Commission Through its Secretary 6th Floor, Gift One, Road, 5C, Zone 5, Gift City, Gandhinagar – 382355 Gujarat Email: secretary@gerc.in.org

2. Gujarat Urja Vikas Nigam Ltd. Through its Secretary Sardar Patel Vidyut Bhavan, Race Course Circle, Vadodara – 390007 Gujarat Email: commerce.guvnl@gmail.com

… Respondent (s)

Counsel for the Appellant(s)

: Buddy A. Ranganadhan, Sr. Adv.

Mahesh Agarwal Rishi Agarwala Rohan Talwar

Shashwat Singh

Counsel for the Respondent(s)

: Suparna Srivastava

for Res. 1

Anand K. Ganesan

Swapna Sehsadri

Kriti Soni

Ashabari Basu Thakur

Srishti Khindaria

for Res. 2

J U D G M E NT PER HON’BLE MR. VIRENDER BHAT, JUDICIAL MEMBER

1. Challenge, in this appeal, is to the order dated 05.05.2023 passed by the 1st respondent Gujarat Electricity Regulatory Commission (hereinafter referred to as the Commission) in IA No.15/2022 in petition no.1002 of 2010 whereby the appellant’s claim for compound interest as Delayed payment Charge (DPS) has been rejected and instead, simple interest has been granted while placing reliance upon article 5.3.4 of the PPA dated 30.05.1996 executed between the appellant and 2nd respondent.

2. The appellant had filed the original petition no.1002 of 2010 before the Commission for adjudication of disputes with respect to its certain

monitory claims against 2nd respondent Gujarat Urja Vikas Nigam Limited (in short GUVNL) under the PPA dated 30.05.1996 executed between the two. The petition was disposed of by the Commission vide order dated 22.10.2014 read with corrigendum dated 21.11.2014 thereby allowing the claims of the appellants.

3. Being aggrieved by the said order of the Commission, the 2nd respondent GUVNL approached this Tribunal by way of appeal no.02 of 2015 which was disposed of vide judgment dated 07.04.2022, the relevant portion of which is extracted hereinbelow: - “ ……. THE RESULT

150. In view of the foregoing conclusions, the challenge to the impugned order by the appeal at hand must fail. The appellant will be obliged in law to pay the amounts in terms of the principles that have been decided.

151. As noted earlier, the Commission had called upon the parties to "evaluate the amount receivable" by the second respondent Essar (petitioner before the

Commission) from the appellant GUVNL (respondent before the Commission) "as per the principles decided by the Commission" and "inform the Commission within one month's time from the receipt of the Order". Ideally, the Commission should have quantified the amount payable in terms of the principles decided rather than leaving it to another round of proceedings. Be that as it may, it appears some calculations were submitted before GERC in terms of the said directions. It is clear from the submissions made before us that the parties are not ad idem on the amount payable by the appellant to the second respondent under this dispensation. In order that the exercise is complete, we direct that the State Commission shall now pass the necessary orders on this score, after hearing both parties, expeditiously and at an early date, not later than two months from the date of this judgment. Needless to add the amount already paid in terms of interlocutory order will be adjusted. The Commission shall also ensure by taking appropriate measures that the claims are duly satisfied in a time-bound manner.

152. The appeal is disposed of in above terms. …….”

4. In pursuance to the said judgment of this Tribunal dated 07.04.2022, the appellant filed IA No.15 of 2022 in original petition no.1002 of 2010 before the Commission seeking directions to the 2nd respondent GUVNL to pay the amount worked out by the appellant up to April, 2022 as per the calculation sheet and the summary of the claims annexed to the application. The appellant had claimed an amount of Rs.1556 crores which included Delayed Payment Charge to the tune of Rs.1296.33 crores. The said application was disposed of by the Commission vide order dated 05.05.2023 which has been impugned in this appeal. The Commission has referred to the Article 5.3.4 of the PPA and also placed reliance upon its previous order dated 27.12.2019 in petition no.972 of 2009 filed by GUVNL against appellant and has computed the DPC amount on the bank rate and on simple interest basis.

5. According to the appellant, grant of simple interest instead of compound interest is contrary to the provisions of Article 5.3.4 of the PPA dated 30.05.1996 executed between the parties and also in violation of the order dated 07.04.2022 passed by this Tribunal in appeal no.02 of

2015. On the contrary, the contention of the 2nd respondent GUVNL is that the appellant’s claim for compound interest is totally misconceived and does not flow from either any of the previsions of the PPA or any judgment of this Tribunal.

6. We have heard Shri Buddy A. Ranganadhan, learned senior counsel appearing on behalf of the appellant and Shri Anand Ganesan, learned counsel for the 2nd respondent. We have also perused the impugned order as well as the written submissions filed by the learned counsels.

7. Having heard the learned counsels for both sides at considerable length and having perused the written submissions filed by the parties, the material placed on record and the judgments cited at the Bar, we proceed to deal with the rival contentions.

Our Analysis:

8. The core question that arises for our determination in the present Appeal is:

Whether Article 5.3.4 of the Power Purchase Agreement dated 30.05.1996 (“PPA”) between Essar Power Limited

and Gujarat Urja Vikas Nigam Limited provides for the payment of Delayed Payment Charges (“DPC”) on a compound interest basis, or only simple interest is payable thereunder.

9. Before addressing the rival contentions, it is apposite to extract Article 5.3.4 of the PPA (as amended) in its entirety, which reads as under:

“5.3.4 Delayed Payment Charges: If payment in full is not remitted on or before the close of business on Due Date, delayed payment charge on the unpaid amount due for each day overdue will be imposed by the Company at the rate of 2% over the average interest rate charged by Board's banks on working capital loans during the preceding 12 months, from the 61st day of day of the last day of the period to which the bill pertains”.

10. With the above contractual framework in mind, we now proceed to address the issues that arise for determination.

ISSUE No. I: WHETHER ARTICLE 5.3.4 OF THE PPA PROVIDES FOR COMPOUND INTEREST

A. Submissions on behalf of the Appellant:

11. The learned senior counsel for the Appellant has advanced the following principal contentions:

(a) That Article 5.3.4 of the PPA is based on the interest charged by GUVNL's bankers, and since GUVNL's bankers charge interest on a compound basis with monthly rests on working capital loans, the DPC under Article 5.3.4 must also be on a compound interest basis; (b) That the phrase “unpaid amount due for each day overdue” in Article 5.3.4 necessarily contemplates that interest accrued and remaining unpaid forms part of the “unpaid amount due,” thereby mandating compounding;

(c) That the Hon'ble Supreme Court in T.N. Generation and Distribution Corporation Ltd. v. PPN Power Generating Co. (P) Ltd., (2014) 11 SCC 53 (“PPN Power”), while interpreting a substantially similar clause (Article 10.6 of the PPA therein), held that compound interest was payable;

(d) That RBI Circulars dated 14.08.2003 and 03.03.2016 mandate that Scheduled Commercial Banks charge interest on advances on “monthly rests” which has been explained by RBI to mean compound interest; (e) That the expression “rate” in Article 5.3.4 inherently incorporates the manner of charging interest (i.e., simple or compound) and the periodicity of rests, as held by various legal dictionaries and authorities; (f) That GUVNL itself, in its Affidavit dated 07.03.2018, had admitted that it was discharging its debt on a compounding basis, and that GUVNL's Working Capital Facility documents confirm that interest is charged on "daily outstanding balance," which necessarily includes both principal and interest; (g) That the law laid down in D. Khosla & Company v. Union of India, (2024) 9 SCC 476 in fact supports the Appellant's case, since D. Khosla holds that compound interest can be awarded where there is a specific contract or authority under a statute for compounding,

and Article 5.3.4, by incorporating the practice of GUVNL's bankers, constitutes such a specific contractual stipulation; (h) That the decision of this Tribunal dated 21.03.2025 in Appeal No. 138/2021 did not render any finding on the interpretation of Article 5.3.4 with respect to appellant’s claim for compound interest, inasmuch as the issue before this Tribunal in that appeal was GUVNL's claim under Article 5.4, and the Review Order dated 17.07.2025 confirmed that the question of simple or compound interest was "merely academic" in that context;

(i) That Dakshin Haryana Bijli Vitran Nigam Ltd. v. Adani Power Mundra, (2023) 2 SCC 624 upheld a generator's entitlement to Carrying Cost on a compound interest basis.

B. Submissions on behalf of Respondent No. 2 (GUVNL)

12. The learned counsel for the Respondent No. 2 (GUVNL) has advanced the following contentions:

(a) That Article 5.3.4 of the PPA does not expressly provide for compound interest, and the settled law as laid down in D. Khosla &

Company v. Union of India, (2024) 9 SCC 476 and State of Haryana v. S.L. Arora & Company, (2010) 3 SCC 690 mandates that compound interest can be awarded only if there is a specific contract or authority under a statute for compounding; (b) That when Article 5.3.4 is read harmoniously with Article 5.4 of the PPA, it becomes evident that where the parties intended compound interest, they expressly stated so by using the words "compounded semi-annually" in the second paragraph of Article 5.4, whereas no such expression appears in Article 5.3.4;

(c) That the principle laid down in LIC & Anr. v. Dharamvir, (1998) 7 SCC 348 applies, namely that when the same contract uses two different expressions, those expressions must be accorded different meanings, and the absence of the words “compounded” in Article 5.3.4, as against Article 5.4, is dispositive; (d) That the word “rate” in Article 5.3.4 borrows only the percentage of interest from GUVNL's banking facilities and not the manner of payment (i.e., whether simple or compound);

(e) That “monthly rests” in banking parlance is distinct from "compounding," since monthly rests merely denote the time period when interest is calculated and becomes payable, and compounding arises only when unpaid interest is capitalised; (f) That this Tribunal in its Judgment dated 21.03.2025 in Appeal No. 138/2021 has already interpreted Article 5.3.4 to provide for simple interest only, and the Hon'ble Supreme Court in its Judgment dated 25.09.2025 (GUVNL v. Essar Power, 2025 INSC 1160) understood this Tribunal’s finding in the same manner; (g) That the Remand Order dated 07.04.2022 in Appeal No. 2/2015 directed payment of DPC on the “principal amount outstanding” which confirms that only simple interest was contemplated; (h) That the PPN Power case is distinguishable on facts, since the clause therein (Article 10.6) was based on restitutionary principles and pegged interest to the rate charged by the bank of the party to whom the payment was due, whereas Article 5.3.4 is pegged to a specific rate of “2% over” the average interest rate charged by the Board's banks.

13. We have heard the learned counsel for the parties at length and have perused the written submissions as well as the material placed on record. We now proceed to deal with the issues arising therefrom.

(I) The Legal Framework Governing Compound Interest

14. At the outset, it is well settled that ordinarily, courts do not grant compound interest unless there is a specific contractual stipulation or statutory provision to that effect. This position is settled by a catena of decisions of the Hon'ble Supreme Court. In D. Khosla & Company v. Union of India, (2024) 9 SCC 476, the Hon'ble Supreme Court held (at para 24):

"In the light of the above legal provisions and the case law on the subject, it is evident that ordinarily courts are not supposed to grant interest on interest except where it has been specifically provided under the statute or where there is specific stipulation to that effect under the terms and conditions of the contract. There is no dispute as to the power of the courts to award interest on interest or

compound interest in a given case subject to the power conferred under the statutes or under the terms and conditions of the contract but where no such power is conferred ordinarily, the courts do not award interest on interest."

15. Similarly, in State of Haryana v. S.L. Arora & Company, (2010) 3 SCC 690, the Hon'ble Supreme Court had held (at para 12):

"Compound interest can be awarded only if there is a specific contract, or authority under a statute, for compounding of interest."

16. The Constitution Bench of the Hon'ble Supreme Court in Central Bank of India v. Ravindra, (2002) 1 SCC 367, after an exhaustive consideration of the law, summarised the position at paragraph 36:

"The English decisions and the decisions of this Court and almost all the High Courts of the country have noticed and approved long-established banking practice of charging interest at reasonable rates on periodical rests and

capitalising the same on remaining unpaid. Such a practice is prevalent and also recognised in non-banking moneylending transactions. The legislature has stepped in from time to time to relieve the debtors from hardship whenever it has found the practice of charging compound interest and its capitalisation to be oppressive and hence needing to be curbed. The practice is permissible, legal and judicially upheld excepting when superseded by legislation."

And further at paragraph 49:

"A creditor can charge interest from his debtor on periodical rests and also capitalise the same so as to make it a part of the principal. Such a course can be justified by stipulation in a contract voluntarily entered into between the parties or by a practice or usage well established in the world to which the parties belong. Such practice is to be found already in vogue in the field of banking business."

17. The legal position is, therefore, not in doubt: while compound interest is not the default, it is permissible and enforceable where the contract specifically provides for it, either expressly or by incorporating a well-established practice that involves compounding.

18. The question that falls for our consideration, accordingly, is whether Article 5.3.4 of the PPA constitutes such a "specific stipulation" or "specific contract" within the meaning of the law laid down by the Hon'ble Supreme Court.

(II) The Textual Construction of Article 5.3.4

19. We have carefully perused Article 5.3.4 of the PPA. Two aspects of the clause require close attention:

First, DPC is to be imposed on "the unpaid amount due for each day overdue". On a plain reading, this phrase contemplates that what is "unpaid" and "due" on any given day includes not merely the original principal but also any accrued but unpaid interest. Had the PPA intended DPC to be levied only on the original principal, it would naturally have referred to "the principal amount" or "the amount

originally billed", which is the formulation used in the Order dated 07.04.2022 when it referred to "all the principal amount outstanding". The use of the composite phrase "unpaid amount due for each day overdue" is therefore significant. We do not, however, rest our conclusion solely on this phrase, which is linguistically capable of more than one reading. What is decisive is its cumulative effect when read with the incorporation of GUVNL's banking practice through the words "at the rate of ... interest rate charged by Board's banks on working capital loans". It is this contractual mechanism of incorporating banking norms, identical in structure to that upheld in PPN Power, that distinguishes Article 5.3.4 from a mere simple- interest provision.

Second, Article 5.3.4 does not prescribe a standalone rate of interest. It provides that DPC shall be imposed "at the rate of 2% over the average interest rate charged by Board's banks on working capital loans during the preceding 12 months". The clause thereby incorporates, by reference, the interest rate practice of GUVNL's own banks on working capital facilities. The phrase "interest rate charged by Board's banks" is a composite expression: it refers not merely to a numerical percentage but to the rate as actually

"charged" by the banks, which, as the uncontroverted evidence on record establishes, includes charging compound interest on daily outstanding balances with monthly rests.

20. The interest rate applicable to Delayed Payment Charges under Article 5.3.4 of the Power Purchase Agreement is benchmarked to the average interest rate charged by GUVNL's own banks on working capital loans during the preceding twelve months, with an additional premium of two percent thereover, for sound commercial and equitable reasons. The underlying rationale is that when GUVNL fails to remit payment in full by the Due Date, Appellant is effectively denied the use of funds that are contractually owed to it and is consequently compelled — or would reasonably be compelled — to service its own working capital requirements through borrowings from its lenders. By pegging the Delayed Payment Charge to the rate at which GUVNL itself borrows from its banks for working capital purposes, the clause ensures that Appellant is compensated on terms that reflect the actual cost of money in the hands of the defaulting party, thereby avoiding any unjust enrichment on GUVNL's part. This is a commercially fair and equitable mechanism: GUVNL is held to pay, as a consequence of its own default, no more and no less than what it would itself pay its banks for equivalent working capital

finance, plus the contractual premium — a standard that neither inflates Appellant’s recovery beyond a recognisable commercial measure nor permits GUVNL to profit from the delay. Critically, by incorporating the periodicity and compounding practice applicable to GUVNL's working capital facilities — which, as mandated by the Reserve Bank of India's circulars and confirmed by GUVNL's own banking documents, involves the charging of interest on daily outstanding balances with monthly rests — the clause creates a powerful and self-calibrating incentive for timely payment: the longer GUVNL delays, the greater the accumulating charge, computed precisely on the same compounding basis that GUVNL itself bears as a borrower. This alignment ensures that GUVNL derives no economic advantage from withholding payment and that the cost of delay to the payee is made whole in a manner consistent with prevailing commercial and banking practice.

(III) The PPN Power Judgment and Its Direct Applicability

21. In this context, it would be gainful to refer to the decision of the Hon'ble Supreme Court in PPN Power. The relevant clause therein (Article 10.6 of the PPA, as quoted in the underlying Commission judgment) provided as under:

“Late Payments shall bear interest accrued from the Due Date they became overdue at a rate equal to the rate charged from time to time on cash credits extended to the Party to whom such payment is due plus one half percent (0.5%) per annum, to the extent permitted by law or if such facilities are not available at the cash credit rate offered by State Bank of India for comparable Independent power producers plus one half percent (0.5%).”

22. The Hon'ble Supreme Court, in interpreting the above clause, held at paragraph 75:

“The late payment clause only captures the principle that a person denied the benefit of money, that ought to have been paid on due dates should get compensated on the same basis as his bank would charge him for funds lent together with a deterrent of 0.5% in order to prevent delays. It is submitted by Mr Salve and Mr Bhushan that bankers of the respondents have applied quarterly compounding or monthly compounding for cash credits during different periods on the

basis of RBI norms. Article 10.6 of the PPA has followed the norms of the bank. This cannot be said to be unfair as the same principle would also apply to the appellants.”

23. We note that Article 5.3.4 of the PPA in the present case and Article 10.6 in the PPN Power case are materially analogous in their operative mechanism. Both clauses peg DPC/late payment charges to the interest rate charged by banks on credit facilities, with a specified premium. Both incorporate banking norms rather than prescribing a flat percentage. The comparison is as under:

Article 10.6 (PPN Power): “at a rate equal to the rate charged from time to time on cash credits extended to the Party to whom such payment is due plus one half percent (0.5%)” Article 5.3.4 (Present PPA): “at the rate of 2% over the average interest rate charged by Board's banks on working capital loans during the preceding 12 months”

24. The mechanism is substantially the same. In both clauses, DPC or late payment charges are pegged to the rate as actually charged by banks, with a premium thereover. The Hon'ble Supreme Court in PPN

Power held that such incorporation of banking norms necessarily includes the compounding practice followed by banks.

(IV) GUVNL's Attempt to Distinguish PPN Power is Without Merit

25. GUVNL has sought to distinguish PPN Power on two grounds, which we now proceed to address.

First, it is argued that PPN Power was decided on restitutionary principles and not on the contractual clause per se. We do not find merit in this submission. A careful reading of paragraph 75 of PPN Power makes it evident that the Hon'ble Supreme Court decided the issue of compound interest on the basis of the contractual clause itself (in that case, Article 10.6 of the PPA), and not on equitable or restitutionary principles. The Court's reasoning was grounded in the observation that "Article 10.6 of the PPA has followed the norms of the bank" and that compensating the injured party "on the same basis as his bank would charge him" was the contractual mechanism. This is a finding on the construction of the PPA clause, not an exercise of equitable discretion.

Second, GUVNL contends that Article 10.6 in PPN Power pegged the interest to the rate charged by the bank of “the Party to whom such payment is due” whereas Article 5.3.4 pegs the rate to the “Board's banks”. This distinction does not, in our view, make a material difference. The operative mechanism remains identical: the DPC clause incorporates the banking practice of the relevant entity. Whether the reference is to the bank of the payee (as in PPN Power) or the bank of the payor (as in the present case) does not alter the fact that the clause mandates interest to be charged in accordance with banking norms, which, as the evidence establishes, involve compounding.

(V) The Article 5.4 Argument: Presence of “Compounded Semi- Annually” Does Not Negate Compounding in Article 5.3.4

26. GUVNL places considerable reliance on the fact that Article 5.4 (second paragraph) of the PPA expressly uses the phrase "compounded semi-annually" while incorporating the practice of GUVNL's bankers, whereas Article 5.3.4 contains no such express mention. Relying on LIC v. Dharamvir, (1998) 7 SCC 348, GUVNL argues that this differential drafting shows that the parties intended compound interest only

under Article 5.4 and not under Article 5.3.4.

27. We have considered this argument carefully and do not find merit therein, for the following reasons:

(a) The ratio of LIC v. Dharamvir is inapplicable on facts. That judgment dealt with two different expressions used within the same clause of the same policy, namely, “date of the policy” and “the date on which the risk under the policy has commenced”. The Court held that these two different expressions, used in the same clause, must convey different meanings. In the present case, the comparison is not between two expressions within the same clause, but between two entirely different clauses (Article 5.3.4 and Article 5.4) dealing with different situations entirely. Article 5.3.4 pertains to delayed payment charges for unpaid invoices, whereas Article 5.4 pertains to interest on amounts wrongly deducted by Appellant from letters of credit issued by GUVNL. The contexts are materially different.

(b) In our view, the more plausible explanation is that in Article 5.4 the draftsman wished to specify a particular periodicity of compounding, namely semi-annual, irrespective of what GUVNL's

bankers were following at any given time. In Article 5.3.4, by contrast, the periodicity of compounding was left to be determined by whatever practice GUVNL's bankers were actually following (which, as the RBI Circulars and banking documents establish, is monthly rests). The express reference to "compounded semi- annually" in Article 5.4 thus specifies the periodicity of compounding; it does not introduce compounding for the first time. The absence of the word "compounded" in Article 5.3.4 does not negate compounding; it leaves the periodicity to the banking practice incorporated by reference.

(VI) D. Khosla does not negate, rather supports the Appellant's Case

28. Learned counsel for GUVNL has placed reliance on D. Khosla & Company v. Union of India, (2024) 9 SCC 476 to contend that compound interest cannot be implied. We do not agree, for the reasons that follow.

29. D. Khosla does not hold that compound interest can never be awarded. On the contrary, it acknowledges that compound interest is permissible where it is "specifically provided under the statute or where there is specific stipulation to that effect under the terms and conditions of

the contract." The question is whether Article 5.3.4 constitutes such a "specific stipulation."

30. In our view, it does. Article 5.3.4 does not require compound interest to be implied from silence. It expressly incorporates, by reference, the interest rate "charged by Board's banks on working capital loans". The uncontroverted evidence demonstrates that:

(a) GUVNL's working capital loan documents (Statutory Form for Creation of Charge) specify that interest is charged on “daily outstanding balance,” which includes both principal and accrued interest.

(b) Clause 5 of the Hypothecation Agreement confirms the practice of charging interest with monthly rests.

(c) The RBI Circulars dated 14.08.2003 and 03.03.2016 mandate that interest on advances by Scheduled Commercial Banks shall be charged on “monthly rests”, which the RBI itself has explained to mean compound interest. Clause 1.2 read with Clause 11(i) of the Circular dated 14.08.2003 leaves no room for doubt on this score.

(d) GUVNL's own Affidavit dated 07.03.2018 admits that GUVNL has been discharging its debt on a compounding basis.

31. Thus, Article 5.3.4, by incorporating the practice of GUVNL's bankers, constitutes a "specific stipulation" for compound interest within the meaning of D. Khosla. The clause does not leave compounding to implication; it pegs DPC to the actual interest rate as charged by GUVNL's banks, which is, and has been, on a compounding basis. To hold otherwise would be to read the words "interest rate charged by Board's banks" as meaning something different from what those banks in fact charge, which would amount to rewriting the contract.

(VII) The Judgment Dated 21.03.2025 in Appeal No. 138/2021 Does Not Constitute a Binding Finding on Article 5.3.4 Vis-a-vis the Appellant

32. It is contended on behalf of GUVNL that this Tribunal's Judgment dated 21.03.2025 in Appeal No. 138/2021 has already interpreted Article 5.3.4 as providing for simple interest only. We are unable to accept this contention in light of the facts of this case. Moreover, the Judgment dated 21.03.2025 in fact nowhere mentions that simple interest has been granted pursuant to Article 5.3.4 of the PPA.

33. We have carefully perused the Judgment dated 21.03.2025 passed in Appeal No. 138/2021 and, having considered its scope, context and operative findings, are of the opinion that it does not constitute a binding or conclusive determination of the question now before us. Our reasons are as under:

(a) In Appeal No. 138/2021, the issue of compound interest arose in the context of GUVNL's claim that it was entitled to compound interest on account of payments required from HT Consumers. It was not the Appellant herein who was claiming compound interest under Article 5.3.4 in that appeal. GUVNL's claim was of a fundamentally different character.

(b) In that judgment, at paragraph 72, this Tribunal recorded GUVNL's submission "that as per settled principle of law ordinarily courts are not supposed to grant interest on interest, except where it has been specifically provided under the statute or where there is specific stipulation to that effect under the terms and conditions of the contract". The Tribunal then rejected GUVNL's claim for compound interest on the footing that "GUVNL has not made any submissions that as per Article 5.4.3 of PPA, the DPC is meant to be on compound interest basis rather than simple interest". The

rejection was thus based on the nature of GUVNL's own submissions in support of its claim, not on a definitive construction of Article 5.3.4.

(c) The Review Order dated 17.07.2025 in R.P.9/2025 confirms this. This Tribunal there held that "the question whether the PPA stipulates simple or compound interest is merely academic, and academic issues do not necessitate adjudication even in a substantive appeal, much less in a review petition." The Judgment dated 21.3.2025 did not contain any decision on the interpretation of Article 5.3.4 of the PPA and has no relevance to the present appeal.

34. We now deal with paragraph 74 of the said Judgment, where this Tribunal observed that it found "no infirmity in the Impugned Order regarding the applicability of DPC as per the PPA on simple interest". GUVNL relies on this observation to claim that Article 5.3.4 provides for simple interest. It is worth noting here that this Tribunal made this observation while rejecting GUVNL's prayer that the DPC rate applicable to HT consumers should be applied. This Tribunal was upholding the State Commission's choice of Article 5.3.4 as the governing provision (as

opposed to HT consumer rates) and noting that DPC had been computed "as per the PPA". The reference to "simple interest" describes what the State Commission had in fact done; it is not a binding pronouncement that Article 5.3.4 mandates simple interest only. This is reinforced by the fact that the simple-versus-compound question under Article 5.3.4 was neither the core issue in Appeal No. 138/2021 nor the subject of Appellant’s claim therein. In fact, this Tribunal specifically rejected GUVNL’s ground seeking parity with Appellant at paragraph 71 when it states that “…we do not find merit in the submissions of GUVNL that DPC should be on compound interest because another Appeal challenging the simple interest payable under Article 5.3.4 by Essar Power is on the file of this Tribunal and for parity, in case that appeal is decided in favour of Essar Power, GUVNL should also be given compound interest…”

35. Furthermore, this Tribunal's Review Order dated 17.07.2025 in R.P. 9/2025, which was filed by Appellant seeking clarification that the Judgment dated 21.03.2025 would not affect its rights in the present appeal, is dispositive of this argument. In that order, this Tribunal specifically held: “Since the Petitioner herein is not aggrieved by the directions passed by us in Appeal No. 138 of 2021 dated 21.03.2025 whereby simple interest was granted to the Appellant therein, the question

whether the PPA stipulates simple or compound interest is merely academic, and academic issues do not necessitate adjudication even in a substantive appeal, much less in a review petition.”

36. This observation unambiguously confirms that the question whether the PPA stipulates simple or compound interest was not decided in the Judgment dated 21.03.2025 and remains open for adjudication in the present appeal. GUVNL's submission that the earlier Judgment constitutes a binding finding on Article 5.3.4 is therefore directly contradicted by this Tribunal's own subsequent order, which was passed on EPOL's Review Petition specifically seeking this clarification.

(VIII) There is no anomaly if Appellant is granted compound interest in this Appeal:

37. We now turn to GUVNL's argument that the Hon'ble Supreme Court, in its Judgment dated 25.09.2025 (GUVNL v. Essar Power, 2025 INSC 1160), (i) understood this Tribunal's Judgment in Appeal 138/2021 as rejecting compound interest and upholding simple interest under Article 5.3.4, and (ii) added a caveat regarding parity if Appellant secured compound interest; and that this understanding is binding and precludes

the Appellant from contending otherwise. GUVNL further submits that accepting Appellant’s claim would create an anomaly whereby GUVNL, as a State entity, would receive only simple interest while Appellant would receive compound interest under the same provision.

38. We have carefully considered the aforesaid submissions and do not find merit therein, for the following reasons:

(a) The issue before the Hon’ble Supreme Court was GUVNL’s entitled to the fixed charge reimbursement and the interest payable. The issue of the interpretation of Article 5.3.4 could never have arisen before the Supreme Court given GUVNL’s own statement before this Tribunal (recorded in the order dated 21.3.2025) that it was not relying on the PPA for its case on compound interest. Contrary to GUVNL assertions, the facts in the Hon’ble Supreme Court’s judgment, have no connection whatsoever to the present case.

(b) The content of paragraph 28 of the Hon'ble Supreme Court's Judgment is a narration of factual and procedural history and cannot be construed to be a finding as contended by GUVNL. It is worth reiterating that the Hon’ble Supreme Court was neither called upon

to, nor did it ever interpret Article 5.3.4 of the PPA. It is also significant that GUVNL's own written submissions before the Supreme Court drew attention to this Tribunal's Review Order dated 17.07.2025 in R.P. 9/2025, which clarified the scope of the earlier observations as academic. We reject the attempt by GUVNL to use a factual narration as a finding by the Hon’ble Supreme Court when the record clearly shows otherwise.

39. Applying this principle, the recital of facts at paragraph 28 of the Supreme Court's Judgment is plainly not its ratio decidendi, nor even obiter dicta on the interpretation of Article 5.3.4. The ratio of GUVNL v. Essar Power concerns GUVNL's entitlement to HTP 1 fixed charges and the basis thereof; it does not concern the construction of Article 5.3.4 vis- à-vis compound interest. A factual narration reciting a caveat recorded in an earlier order of this Tribunal cannot be elevated to a binding determination on a contractual question never argued before or decided by the Supreme Court.

40. We further note that in the proceedings before the Hon'ble Supreme Court, GUVNL did not advance any claim for compound interest on the basis of Article 5.3.4. Its claim for compound interest rested solely on the

interest rate applicable to HT Consumers. Having neither raised nor argued compound interest under Article 5.3.4, GUVNL cannot now contend that the Hon’ble Supreme Court rendered a finding on a point that was never put in issue before it. A court cannot be said to have decided a question that was not in issue.

41. As regards GUVNL's argument that accepting EPOL's claim would create an anomaly whereby GUVNL receives only simple interest while Appellant receives compound interest under the same provision, we find the submission misconceived. First, the present Appeal concerns appellant's contractual claim under Article 5.3.4 and must be decided on its own merits. An earlier order in different proceedings, involving different issues and submissions, cannot foreclose the interpretation of a contractual clause. Second, GUVNL's claim for compound interest in Appeal No. 138/2021 was rejected because “the DPC applicable to HT consumers is inapplicable” to the present case and not on the applicability (or otherwise) of Article 5.3.4 of the PPA, which had been given up by GUVNL. In fact, it was clearly held by this Tribunal that GUVNL has not made any submissions under Article 5.3.4 in Appeal 138/2021. The rejection by this Tribunal thus stemmed from GUVNL's own stance and

not from any concluded interpretation of Article 5.3.4. The two situations are therefore not comparable.

42. In view of the foregoing discussion, we are not constrained from deciding the issue on its merits in the captioned Appeal. We proceed to do so.

(IX) “Monthly Rests” and “Compounding”: The Distinction sought to be drawn by GUVNL is Unsustainable

43. GUVNL has argued that "monthly rests" in banking parlance is distinct from "compounding", contending that monthly rests merely denote the period for calculating interest and that compounding arises only upon default in payment of interest. We do not accept this submission, for the following reasons.

44. The Constitution Bench of the Hon'ble Supreme Court in Central Bank of India v. Ravindra, (2002) 1 SCC 367, specifically addressed the practice of banks charging interest with periodical rests. The Court held, at paragraph 49:

"A creditor can charge interest from his debtor on periodical rests and also capitalise the same so as to make it a part of the principal. Such a course can be justified by stipulation in a contract voluntarily entered into between the parties or by a practice or usage well established in the world to which the parties belong."

45. Furthermore, the RBI Circular dated 14.08.2003, Clause 1.2 read with Clause 11(i), mandates that interest on advances shall be charged on "monthly rests". RBI has explained that this means interest calculated at the end of each month, if remaining unpaid, is added to the principal for the next period — which is, by definition, compound interest. We accept that, in the abstract, there may be loan products where interest is computed periodically but serviced without capitalisation. The question here, however, is the actual practice of GUVNL's bankers on the specific working capital facilities referenced in Article 5.3.4. On this, the evidence is unambiguous: the Statutory Form for Creation of Charge and Clause 5 of the Hypothecation Agreement show interest charged on "daily outstanding balance" with monthly rests, and GUVNL has produced no contrary evidence. GUVNL's Affidavit dated 07.03.2018 further admits that it has been "discharging its debt on compounding basis". In these

circumstances, the distinction GUVNL seeks to draw is untenable on the facts.

46. The submission of GUVNL that compounding arises "only when there is default in payment of interest on monthly basis, and the Agreement specifically provides for capitalisation of interest" does not advance its case. In the present context, where GUVNL has defaulted in making timely payments under the PPA (which is the very premise for the application of Article 5.3.4), the interest charged on monthly rests with the consequent capitalisation of unpaid interest is precisely the banking practice that the clause incorporates by reference.

(X) The Word “Rate” Incorporates the Manner of Charging

47. GUVNL's contention that the word "rate" in Article 5.3.4 borrows only the numerical percentage of interest from GUVNL's banking facilities, and not the manner of charging, is also unsustainable, for the following reasons:

(a) Even on GUVNL's own reading, this argument is directly contrary to the law laid down in PPN Power, where the clause also used the word "rate" ("at a rate equal to the rate charged"), and the Hon'ble

Supreme Court nonetheless held that compound interest was payable.

(b) The word “rate” does not exist in a vacuum. As the Bouvier Law Dictionary defines it: "An interest rate is a charge made for the use of money for a period of time, the rate itself being a designated percentage of the principal owed, calculated by the means by which the percentage is assessed and the means by which the interest is itself added to the principal as it is assessed." Thus, a “rate” inherently carries with it the means of computation, including whether interest is simple or compound.

(c) Article 5.3.4 does not refer to the "rate" in the abstract; it refers to the "interest rate charged by Board's banks". The word "charged" is significant. It points to the rate as actually levied, which includes the practice of compounding with monthly rests. Reading "rate" as only a percentage, divorced from the manner in which it is charged, would do violence to the language of this Article.

(XI) GUVNL's Admission and Approbate-Reprobate

48. It is also pertinent that GUVNL itself, when claiming compound interest under Article 5.3.4 in the proceedings leading to the Judgment

dated 21.03.2025, took the position that this clause provides for compound interest. Its Affidavit dated 07.03.2018 expressly states that "GUVNL has been discharging its debt on compounding basis." GUVNL cannot now be permitted to adopt an inconsistent stand on the interpretation of the same provision. The doctrine of approbate and reprobate, firmly embedded in Indian law, bars such conduct. In its Counter Affidavit in the present proceedings, GUVNL has not denied that it incurs compound interest on its working capital facilities.

(XII) The Order Dated 07.04.2022 of this Tribunal

49. GUVNL has argued that the Order dated 07.04.2022 in Appeal No. 2/2015, which directed payment of "DPC on all the principal amount outstanding", confirms that only simple interest was contemplated. We do not agree. That order merely reiterated the terms of Article 5.3.4 by directing computation "at the rate of 2% over average interest rate charged by Board's banks on working capital loans during the preceding 12 months". As explained above, this formulation incorporates, rather than excludes, compounding by reference to banking practice. The language of the Order does not expressly direct compound interest, but equally does not exclude it. It adopted the contractual formula of Article 5.3.4 and

left open, for the State Commission on remand, the question whether that formula yields simple or compound interest. That is the very question which now arises in this Appeal.

(XIII) A Final Observation

50. Before summarising our findings, we reiterate that the general law disfavours compound interest in the absence of express contractual provision, as established by D. Khosla, S.L. Arora and earlier authorities. Nor do we hold that every PPA clause referencing bank rates necessarily imports compounding. Our conclusion is confined to the specific language of Article 5.3.4 of this PPA, read with the uncontroverted banking documents showing that GUVNL's bankers charge compound interest with monthly rests on the working capital facilities that Article 5.3.4 incorporates by reference. It is this combination of contractual language and factual banking practice that satisfies the threshold of "specific stipulation" required by law. We are conscious that this conclusion departs from the simple-interest computation adopted by the State Commission and described in earlier proceedings, but for the reasons already set out, those proceedings do not foreclose our present determination.

CONCLUSION

51. We hereby summarize our conclusion as under:

(a) Article 5.3.4 of the PPA dated 30.05.1996 constitutes a "specific stipulation" for compound interest within the meaning of the law laid down in D. Khosla & Company v. Union of India, (2024) 9 SCC 476 and State of Haryana v. S.L. Arora & Company, (2010) 3 SCC 690, inasmuch as it incorporates, by reference, the practice of GUVNL's bankers on working capital loans, which practice involves the charging of compound interest with monthly rests.

(b) The judgment of the Hon'ble Supreme Court in T.N. Generation and Distribution Corporation Ltd. v. PPN Power Generating Co. (P) Ltd., (2014) 11 SCC 53, which interpreted a clause employing an analogous mechanism of incorporating banking norms for computing late payment charges, provides strong persuasive guidance and supports the construction we adopt. While the two clauses are not textually identical, the operative principle underlying PPN Power — that a clause pegging DPC to the interest rate as charged by banks necessarily incorporates the compounding practice inherent in such charges — applies equally here.

(c) GUVNL's reliance on D. Khosla, S.L. Arora, LIC v. Dharamvir, and the drafting distinction between Articles 5.3.4 and 5.4 is misplaced for the reasons elaborated above.

(d) The Judgment dated 21.03.2025 in Appeal No. 138/2021 does not constitute a binding precedent on the issue of compound interest under Article 5.3.4 vis-à-vis the Appellant.

(e) GUVNL's attempt to distinguish "monthly rests" from "compounding" is unsustainable in law in view of Central Bank of India v. Ravindra, (2002) 1 SCC 367, and the RBI Circulars on the subject.

(f) The Impugned Order dated 05.05.2023 of the Gujarat Electricity Regulatory Commission, insofar as it rejected the Appellant's claim for compound interest and granted only simple interest under Article 5.3.4, is vitiated by an error of law.

ORDER

52. In view of our analysis above, the Impugned Order dated 05.05.2023 passed by the Gujarat Electricity Regulatory Commission in

I.A. No. 15/2022 in Petition No. 1002/2010 is set aside to the extent that it denied compound interest to the Appellant under Article 5.3.4 of the PPA and wrongly computed DPC on a simple interest basis.

53. We hereby hold that Article 5.3.4 of the Power Purchase Agreement dated 30.05.1996, entered into between Appellant Essar Power Limited and 2nd Respondent Gujarat Urja Vikas Nigam Limited, constitutes a specific contractual stipulation for the levy of Delayed Payment Charges on compound interest basis, computed with monthly rests;

54. Accordingly, the Impugned Order dated 05.05.2023 stands modified to the extent that the Appellant, Essar Power Limited, is entitled to Delayed Payment Charges under Article 5.3.4 of the Power Purchase Agreement (as amended), computed on a compound interest basis with monthly rests. The Gujarat Electricity Regulatory Commission is hereby directed to recompute the Delayed Payment Charges payable to the Appellant in accordance with the directions set out herein, after affording both parties a reasonable opportunity of hearing on the question of computation, within one month from the date of receipt of this judgment.

55. The Appeal is accordingly allowed in the above terms. All pending Interlocutory Applications, if any, stand disposed of in terms of this order.

Pronounced in the open court on this the 29th day of May, 2026.

(Virender Bhat) Judicial Member (Seema Gupta) Officiating Chairperson

✓ REPORTABLE / NON-REPORATBLE